Ifa 


// 


SEPTEMBER,    1857. 

• 

A  LIST   OF  BOOKS 


PUBLISHED    BY 


LITTLE,  BROWN  AND  COMPANY, 

LAW  AND  FOREIGN  BOOKSELLERS, 
BOSTON. 


Adams's  Life  and  Works. 

THE  LIFE  AND  WORKS  OF  JOHN  ADAMS,  Second  President  of  the  United 
States.  Edited  by  his  Grandson,  CHARLES  FRANCIS  ADAMS.  10  vols.  Svo,  cloth,  822.50. 

Agassiz'  Natural  History. 

CONTRIBUTIONS    TO    THE   NATURAL   HISTORY   OF  THE   UNITED 

STATES  OF  AMERICA.     By  Prof.  Locis  AGASSIZ.     To  be  comprised  in  10  vols.,  4to. 

Vol.  I.  contai^ng  — I.  An  Essay  on  Classification.     II.  A  Revision  of  the  North  American 
Turtle.    III.  The  Embryology  of  these  Animals,  with  plates.    §12.00. 

[Cr'No  subscriptions  taken  excepting  for  the  work  complete. 

American  Loyalists. 

THE  AMERICAN  LOYALISTS ;  or,  Biographical  Sketches  of  Adherents  to  the 
British  Crown  in  the  War  of  the  Revolution,  alphabetically  arranged  ;  with  a  Preliminary  His- 
torical Essay.  By  LORENZO  SABISE.  Svo,  cloth,  82-75. 

Ames's  Life  and  Works. 

THE  WORKS  OF  FISHER  AMES  ;  with  a  Selection  from  his  Speeches  and 
Correspondence.  Edited  by  his  Son,  SETH  AMES.  2  vols.  Svo,  with  Portrait,  cloth,  $4.50. 

Bacon's  Essays. 

THE  ESSAYS  :  or,  Councils,  Civil  and  Moral :  and  the  Wisdom  of  the  Ancients. 
By  FRANCIS  BACON,  Baron -of  Verulam,  Viscount  of  St.  Albans,  and  Lord  High  Chancellor  of  Eng- 
land. With  a  Biographical  Notice  by  A.  SPIERS,  Ph.  D. ;  Preface  by  B.  MONTAGU,  Esq. ;  and 
Notes  by  different  Writers.  16mo,  cloth,  75  cents. 

Bancroft's  History. 

A  HISTORY  OF  THE  UNITED  STATES,  from  the  Discovery  of  the  Ameri- 
can Continent.  By  GEORGE  BANCROFT.  With  Portraits,  Maps,  etc.  6  vols.  Svo,  cloth,  S12.75. 

Boeckh's  Athenians. 

THE  PUBLIC  ECONOMY  OF  THE  ATHENIANS.    By  AUGUSTUS  BOECKH. 

translated  from  the  second  German  edition.      With  Notes  and  a  Copious  Index  by  ANTHONY 
LAMB.    Portrait.    Svo,  cloth,  $4.00. 


4  A   LIST   OF   BOOKS   PUBLISHED   BY   LITTLE,   BROWN   &   CO. 

Sparks's  Correspondence  of  the  Revolution. 

CORRESPONDENCE  OF  THE  REVOLUTION.  Being  Letters  from  Eminent 
Men  to  George  Washington,  from  the  Time  of  his  taking  Command  of  the  American  Army  to  the 
End  of  his  Life.  Edited  by  JARED  SPARKS.  4  vols.  8vo,  cloth,  §9.00 ;  royal  8vo,  812.00. 

Sparks's  Writings  of  Washington. 

THE  WRITINGS  OF  GEORGE  WASHINGTON;  being  his  Correspondence, 
Addresses,  Messages,  and  other  Papers,  Official  and  Private.  Selected  and  published  from  the 
Original  Manuscripts  ;  with  a  Life  of  the  Author,  Notes,  and  Illustrations.  By  JARED  SPARKS. 
12  vols.  8vo,  cloth,  818.00. 

Sparks's  Life  of  Washington. 

THE  LIFE  OF  GEORGE  WASHINGTON.  By  JARED  SPARKS.  New  edition. 
8vo,  cloth,  81.50. 

Sparks's  American  Biography. 

THE  LIBRARY  OF  AMERICAN  BIOGRAPHY.  Conducted  by  JARED 
SPAKKS.  New  Series;  complete  in  Fifteen  Volumes,  each  volume  containing  a  Portrait,  or  a 
neatly  engraved  Historical  Sketch.  12mo,  cloth,  81  per  vol. 

Spectator. 

THE  SPECTATOR.  Edited  by  A.  CHALMERS.  Fine  edition.  8  vols.  16mo, 
cloth,  $6.00. 

Story's  Life. 

THE  LIFE  OF  HON.  JOSEPH  STORY  ;  with  Selections  from  his  Correspond- 
ence, by  his  Son,  W.  W.  STORY.  2  vols.  8vo,  cloth,  85.50. 

Story's  Miscellaneous  Works. 

THE  MISCELLANEOUS  WRITINGS  OF  HON.  JOSEPH  STORY.  Edited 
by  his  Son,  W.  W.  STORY.  8vo,  cloth,  83.00- 

Webster's  Life  and  Works. 

THE  SPEECHES,  FORENSIC  ARGUMENTS,  AND  DIPLOMATIC  PA- 
PERS OF  DANIEL  WEBSTER;  with  a  Notice  of  his  Life  and  Works,  by  EDWARD  EVERETT. 
Tenth  edition.  6  vols.  8vo,  cloth,  812.00. 

Webster's  Private  Correspondence. 

THE  PRIVATE  CORRESPONDENCE  OF  DANIEL  WEBSTER,  with  the 
Autobiography.  Edited  by  his  Son,  FLETCHER  WEBSTER.  Portraits.  2  vols.  8vo,  cloth,  $4.50. 

Winthrop's  Speeches  and  Addresses. 

SPEECHES   AND   ADDRESSES    ON   VARIOUS    OCCASIONS,    by   Hon. 

ROBERT  C.  WDJTHROP.    8vo,  cloth,  83.00. 

Winthrop's  History  of  New  England. 

HISTORY  OF  NEW  ENGLAND,  from  1630  to  1649.  By  JOHN  WINTHROP, 
First  Governor  of  the  Colony  of  the  Massachusetts  Bay.  From  his  original  manuscript.  With 
Notes,  by  JAKSS  SAVAGE.  New  edition.  2  vols.  8vo,  cloth,  $4.50. 

Woodbury's  Miscellaneous  Writings. 

THE  WRITINGS  OF  HON.  LEVI  WOODBURY,  Political,  Judicial,  and 
Literary.  Now  first  selected  and  arranged.  With"  Portraits.  3  vols.  8vo,  cloth,  $6.00. 

Young's  Chronicles  of  Massachusetts. 

CHRONICLES  OF  THE  FIRST  PLANTERS  OF  THE  COLONY  OF  THE 
MASSACHUSETTS  BAY,  IN  NEW  ENGLAND,  from  1623  to  1635;  now  first  collected  from 
Original  Manuscripts  and  Unpublished  Records,  and  illustrated  with  Notes.  By  ALEXANDER 
YOUSG.  With  a  Portrait  of  Governor  Winthrop.  8vo,  cloth,  82.50. 


THE 


PRINCIPLES 


POLITICAL    ECONOMY 


APPLIED   TO 


THE   CONDITION,   THE  RESOURCES,   AND  THE   INSTITUTIONS 
OF   THE   AMERICAN  PEOPLE. 


FRANCIS     BOWEN, 

ALFORD   PROFESSOR    OF  MORAL   PHILOSOPHY  AND    CIVIL  POLITY 
IH    HARVARD   COLLEGE. 


"  It  is  not  that  a  Duke  has  50,000/.  a  year,  but  that  a  thousand  fathers  of  families  have  5<M.  a 
year,  that  is  true  national  wealth  and  well-being."  —  LAINO. 


BOSTON: 
LITTLE,    BROWN,    AND    COMPANY. 

1856. 


Entered  according  to  Act  of  Congress,  in  the  year  1856,  by 

FRAXCIS      BOWEX, 
the  Clerk's  Office  of  the  District  Court  of  the  District  of  Massachusetts. 


CAMBRIDGE : 

8TEBEOTTPED   AXD  PWJiTED  BT   MKTCALF  AXD    COMPANY. 


TO 

NATHAN     APPLETON, 

ONE  OF  THE  MOST  EMINENT  LIVING  BEPRESENTATIVES 
OF  A  HIGHLY  HONORED  CLASS, 

THE    MERCHANT    PRINCES    OF    BOSTON, 

WHO   HAVE   EARNED   SUCCESS 
BY   SAGACITY,  ENTERPRISE,  AND   UPRIGHTNESS   IN  ALL  THEIR  UNDERTAKINGS. 

AND   HAVE   DIGNIFIED   IT 

BY   THE   MUNIFICENCE   OF   THEIR   CHARITIES, 

AND   BY   THEIR   LIBERAL   SUPPORT   OF   LETTERS,   SCIENCE,   AND   THE   ARTS, 
THIS  WORK   IS  RESPECTFULLY  INSCRIBED. 


2O0298S 


PREFACE. 


"  POLITICAL  ECONOMY,"  says  Mr.  Samuel  Laing,  "is  not  a  universal 
science,  of  which  the  principles  are  applicable  to  all  men  under  all  cir- 
cumstances, and  equally  good  and  true  for  all  nations ;  but  every  coun- 
try has  a  Political  Economy  of  its  own,  suitable  to  its  own  physical  cir- 
cumstances of  position  on  the  globe,  climate,  soil,  products,  and  to  the 
habits,  character,  and  idiosyncrasy  of  its  inhabitants,  formed  or  modified 
by  such  physical  circumstances." 

I  am  not  prepared  to  accept  this  remark  in  all  its  generality,  for  if  it 
were  true,  it  would  follow,  not  only  that  Political  Economy  is  not  a  uni- 
versal science,  but  that  it  is  no  science  at  all,  inasmuch  as  universal  ap- 
plicability, as  Mr.  Laing  himself  observes,  is  "  the  distinguishing  char- 
acteristic and  test  of  every  branch  of  knowledge  that  claims  the  dignity 
of  real  science."  But  the  habits  and  dispositions  of  men,  as  manifested 
in  the  pursuit  of  wealth,  may  be  reduced  to  general  principles,  and  thus 
become  subjects  of  legitimate  scientific  classification  and  inquiry,  just  as 
much  as  those  other  habits  and  dispositions  which  are  manifested  in  the 
constitution  and  conduct  of  organized  society,  and  which,  when  general- 
ized and  classified,  become  the  science  of  Politics.  There  is  a  general 
science  of  Human  Nature,  of  which  the  special  sciences  of  Ethics,  Psy- 
chology, ^Esthetics,  Politics,  and  Political  Economy  are  so  many  de- 
partments, all  founded  upon  the  essential  unity  of  the  human  mind  and 
character,  and  the  consequent  similarity  of  its  manifestations  under  sim- 
ilar circumstances.  These  sciences  may  be  studied  either  inductively  or 
deductively ;  that  is,  either  by  observing  the  phenomena,  —  the  conduct  of 
men  under  given  circumstances,  —  and  tracing  these  up  to  their  causes, 


VJ  PREFACE. 

—  the  motives  in  which  they  must  have  originated ;  or  by  assuming  the 
motives  from  our  general  knowledge  of  human  nature,  and  tracing  these 
down  to  the  outward  conduct  which  they  cause  and  govern.  In  this 
sense,  then,  there  is  a  universal  science  of  Political  Economy,  equally 
applicable,  not  only  to  France,  England,  and  America,  but  to  China, 
Tartary,  and  New  Holland,  —  to  all  nations  under  the  sun. 

But  it  must  be  admitted  that  these  universal  principles  are  compara- 
tively few  and  unimportant,  often  being  little  more  than  truisms ;  and  if 
the  science  were  limited  to  them,  it  would  be  of  rather  narrow  compass 
and  limited  utility.  Political  Economy,  as  it  is  commonly  understood, 
embraces  a  great  number  of  corollaries  and  deductions  from  these  prin- 
ciples, and  of  applications  of  them  to  the  analysis  and  explanation  of 
complex  social  and  commercial  phenomena.  It  is  thus  that  the  science, 
or  rather  any  particular  system  of  it,  becomes  obnoxious  to  Mr.  Laing's 
censure  ;  having  been  suggested  by  the  peculiar  circumstances  and  con- 
dition of  one  country,  relating  almost  exclusively  to  the  experience  of 
one  nation,  and  deriving,  in  truth,  most  of  its  utility  for  them  from  this 
very  fact,  it  is  at  least  partially  inapplicable  and  unsound  in  every  other 
case.  The  Political  Economy  of  England  is  even  more  peculiar  and 
characteristic  than  her  civil  polity  and  social  organization ;  it  is  con- 
formed to  that  polity  and  organization,  and  it  is  also  adapted  to  the  phys- 
ical condition  and  industrial  pursuits  of  an  insular  people.  As  circum- 
stances vary  from  age  to  age,  as  well  as  between  different  countries,  it 
is  continually  necessary  to  review  and  modify  the  leading  doctrines  of 
the  science,  so  as  to  preserve  their  conformity  to  the  habits  and  the  in- 
stitutions of  the  people.  If  Adam  Smith  were  living  in  our  own  day,  it 
may  be  doubted  whether  he  would  be  the  uncompromising  advocate  that 
he  was,  of  the  principles  of  Free  Trade.  He  flourished  at  a  time  when 
the  system  of  monopolies  and  restraints  was  in  full  action  and  vigor ; 
when  nothing  had  been  done  to  limit  or  reform  the  colonial  system,  the 
guilds  of  trade,  the  East  India  Company,  the  Universities,  or  the  abuses 
of  municipal  corporations.  It  was  natural  that  he  should  utter  an  ear- 
nest protest  against  these  odious  restrictions  and  monopolies,  and  carry  his 
argument  against  them  too  far,  by  neglecting  to  mention  the  exceptions 
and  limitations  to  which  his  own  principles  were  liable. 

I  have  endeavored  in  this  work  to  lay  the  foundations  at  least,  leaving 
it  for  others  to  raise  the  superstructure,  of  an  American  system  of  Po- 


PREFACE.  Vll 

litical  Economy,  and  for  this  purpose,  have  subjected  to  a  rigorous  exam- 
ination the  leading  doctrines  of  the  science  as  taught  by  English  writers, 
in  order  not  only  to  test  their  general  soundness  and  applicability  to  the 
condition  and  the  institutions  of  the  American  people,  but  to  trace  out 
and  analyze  the  peculiar  circumstances  which  first  suggested  them. 
Among  these  doctrines  may  be  enumerated  those  of  Adam  Smith  upon 
free  trade,  of  Malthus  upon  population,  of  Ricardo  upon  rent  and  profits, 
of  Torrens  and  Loyd  upon  the  currency,  and  of  McCulloch  upon  the 
laws  of  inheritance.  It  is  not  the  light  of  American  experience  alone 
which  has  induced  me  to  modify  or  reject  these  theories ;  I  have  at- 
tempted to  show  that  they  are  indefensible  even  upon  the  principles  of 
those  who  continue  to  support  them,  and  to,  this  end,  have  fortified  my 
reasoning  by  frequent  citations  from  English  and  French  authorities. 

The  work  was  not  designed  to  be  wholly  controversial  and  original ; 
besides  suggesting  the  doctrines  which  are  to  take  the  place  of  those 
which  have  been  rejected,  it  was  intended  to  contain  a  summary  of  what 
is  most  valuable  in  other  treatises  upon  the  subject,  so  as  to  form  a  con- 
venient text-book  of  instruction  in  American  colleges.  Most  teachers 
will  probably  accept  the  conclusion  which  I  have  formed,  after  many 
years'  experience,  that  it  is  a  wearisome  and  hopeless  task  to  at- 
tempt to  instruct  a  class  of  pupils  from  any  of  the  English  or  French 
treatises  upon  the  science.  This  volume  contains  the  substance  of  a 
course  of  lectures  upon  Political  Economy,  first  delivered  before  the 
Lowell  Institute  in  Boston  five  years  ago,  and  afterwards  repeated,  with 
many  changes  and  additions,  before  successive  classes  in  college.  It 
also  comprises  all  that  was  deemed  worthy  of  preservation  in  a  series  of 
articles  upon  various  topics  in  the  science,  which  have  been  published 
during  the  last  ten  years  in  the  North  American  Review.  I  have  not 
deemed  it  necessary  to  rewrite  what  was  at  first  carefully  prepared  for 
publication,  when  time  and  further  reflection  had  not  suggested  any 
change  of  doctrine,  or  any  material  improvements  in  illustration  or 
phraseology. 

The  nature  of  the  subject  has  compelled  me  to  make  a  kind  of  com- 
parative survey  of  the  workings  and  results  of  the  social  and  political 
institutions  of  England  and  America.  It  is  hoped  that  the  results  of 
this  comparison,  as  here  presented,  will  not  seem  to  have  been  suggested 
by  national  prejudice,  or  to  be  unduly  tinctured  with  national  self-esteem. 


Viii  PREFACE. 

Most  of  what  is  valuable  in  our  civil  polity  has  come  to  us  by  inherit- 
ance from  our  English  ancestors,  and  is  still  the  common  property  of 
the  two  nations ;  the  trial  by  jury,  the  writ  of  habeas  corpus,  the  leading 
forms  of  representative  government,  are  still  the  common  safeguards  of 
English  and.  American  freedom,  and  the  great  principles  of  the  English 
Common  Law  are  still  authoritative  in  our  courts.  Loyalty  to  the  State 
and  the  Union  takes  the  place  with  us  of  loyalty  to  the  Crown.  "We 
have  only  cast  off  the  aristocratic  and  monarchical  appendages  of  these 
institutions,  to  make  room  for  democratic  ones, — a  change  far  less  im- 
portant in  a  political  than  a  social  aspect.  Whatever  there  is  peculiar 
in  the  forms  of  society,  the  organization  of  industry,  and  the  habits  and 
dispositions  of  our  people,  which  can  be  directly  traced  to  this  alteration, 
has  been  the  subject  of  frequent  and  sharp  criticism,  not  only  by  British 
travellers,  but  by  British  economists  and  statesmen.  Thus,  Mr.  J.  S. 
Mill,  unquestionably  the  ablest  living  writer  upon  Political  Economy 
and  the  Logic  of  the  Inductive  Sciences,  and  one  who,  from  his  connec- 
tion with  the  followers  of  Bentham  and  the  Radical  party,  might  be  sup- 
posed to  view  with  some  favor  the  workings  of  republican  institutions, 
cannot  speak  in  any  more  flattering  terms  than  these  of  the  inhabitants 
of  the  Northern  and  Middle  States  of  America :  "  They  have  the  six 
points  of  Chartism,  and  they  have  no  poverty ;  and  all  that  these  advan- 
tages do  for  them  is,  that  the  life  of  the  whole  of  one  sex  is  devoted  to 
dollar-hunting,  and  of  the  other  to  breeding  dollar-hunters."  And  the 
tone  of  McCulloch,  Tooke,  and  other  English  economists,  in  reference  to 
the  people  of  this  country,  is  not  a  whit  more  complimentary.*  Not  at 

*  Yet  Englishmen  wonder  and  complain  that  the  sympathies  of  Americans  are  not 
with  them  and  their  allies  in  their  present  contest  with  Russia,  —  a  contest  which,  as 
it  involves  no  principles  of  natural  or  popular  rights,  but  is  solely  a  struggle  between 
rival  governments  for  a  preponderance  of  power  in  the  Black  Sea,  is  certainly  re- 
garded by  the  generality  of  our  countrymen  with  unaffected  indifference.  The  ques- 
tion whether  Napoleon  the  Third  has  any  better  claim  to  the  esteem  of  the  people  of 
the  United  States  than  he  had  to  that  of  Englishmen  only  three  years  ago,  is,  per- 
haps, not  worth  discussing.  But  if  England  and  America  are  ever  to  be  joined  in  a 
natural  alliance  of  spontaneous  amity  and  mutual  regard,  a  more  conciliatory  man- 
ner must  be  adopted  by  those  who  assume  to  speak  the  opinions  of  the  middle  and 
the  upper  classes  in  the  former  country.  Disregard,  if  you  will,  all  those  manifesta- 
tions of  popular  sentiment  here  which  may  be  imputed  to  electioneering  manoeuvres : 
there  still  remains  in  the  minds  of  the  educated  and  reflecting  portion  of  our  peo- 


all  in  the  spirit  of  retaliation,  but  in  that  of  self-defence,  as  well  as  for 
the  more  perfect  elucidation  of  the  principles  of  the  science,  I  have  com- 
pared the  effects  of  aristocratic  with  those  of  democratic  institutions  upon 
the  development  of  national  enterprise,  the  growth  of  opulence,  the  se- 
curity of  property,  the  popular  feeling  of  uneasiness  or  content,  and  the 
general  well-being  of  the  people  in  Great  Britain  and  the  United  States. 
Too  much  stress  is  habitually  laid  by  English  economists  upon  the  nat- 
ural advantages  which  our  countrymen  are  supposed  to  possess,  espe- 
cially in  the  broad  expanse  of  fertile  territory  which  still  remains  open 
for  settlement  by  them.  But  surely  we  cannot  claim  superiority  in  this 
respect  over  England,  whose  colonial  dominion  comprises  Nova  Scotia 
and  Canada,  a  large  portion  of  the  East  and  the  West  Indies,  the  southern 
part  of  Africa,  and  the  whole  of  New  Zealand  and  Australia.  Besides, 
I  have  attempted  to  show  that  the  causes  of  the  increase  of  capital  are 
moral  rather  than  physical,  and  that  there  is  a  drawback,  as  well  as  an 
advantage,  in  the  abundance  and  cheapness  of  land,  which  incite  the 
people  to  leave  behind  them  all  the  means  and  appliances  of  civilization, 
and  to  become  squatters  and  backwoodsmen  in  the  wilderness. 

Though  I  have  had  frequent  occasion  to  controvert  the  opinions  of 
English  economists,  it  is  little  to  say  that  this  work  could  not  have  been 
written  without  the  aid  which  their  writings  have  afforded,  and  that  I 
have  often  borrowed  from  one  or  two  of  them  facts  and  arguments  which 
have  served  to  confute  the  theories  of  the  others.  The  authority  of 
Adam  Smith,  Malthus,  and  Ricardo  seems  to  be  waning  even  in  Eng- 
land ;  a  new  school  has  sprung  up  in  opposition  to  them,  whose  opinions 
on  many  important  points  are  visibly  gaining  ground,  and  have  already 
begun  to  affect  the  legislation  of  the  kingdom.  Among  these  dissen- 
tients may  be  reckoned  the  eminent  traveller  and  social  economist,  Mr. 
Samuel  Laing,  and  the  ingenious  and  well-informed  author  of  "  Over- 
Population  and  its  Remedy,"  Mr.  TV.  T.  Thornton ;  while  Mr.  Tooke, 
the  author  of  an  admirable  "  History  of  Prices,"  and  Mr.  Fullarton,  have 

pie,  who  are  naturally  cordial  well-wishers  to  England,  a  strong  feeling  of  surprise 
and  indignation  at  the  insolent  and  domineering  tone  habitually  assumed  about  ev- 
erything pertaining  to  America  by  that  influential  journal  which,  even  more  than 
the  British  ministry,  is  the  organ  of  public  opinion  in  Great  Britain,  —  a  feeling 
which  mere  diplomacy,  though  conducted  by  persons  as  wise  and  generous  as  Web- 
ster and  Ashburton,  can  never  entirely  eradicate. 


successfully  established,  in  opposition  to  the  paradoxes  of  Ricardo  and 
his  followers,  a  rational  theory  of  the  currency.  Mr.  J.  S.  Mill,  an 
avowed  iconoclast  and  reformer,  has  followed  or  preceded  these  writers 
on  some  of  their  points  of  dissent  from  the  old  school,  and  has  incorpo- 
rated into  his  work  some  very  bold  speculations  respecting  the  laws  of 
inheritance  and  the  distribution  of  property ;  but  in  other  respects,  lie 
has  followed  very  closely  in  the  footsteps  of  Malthus  and  Ricardo. 
From  the  writings  of  all  whom  I  have  mentioned  by  name,  and  of  sev- 
eral others,  I  have  derived  valuable  aid  and  instruction. 

Throughout  the  work,  I  have  had  in  view  the  wants  of  learners,  and 
have  tried  to  incorporate  into  it  such  elementary  information  about  bank- 
ing operations,  the  system  of  disposing  of  the  public  lands,  the  nature  of 
bills  of  exchange,  the  functions  of  the  currency,  the  supply  of  the  pre- 
cious metals,  and  the  course  of  trade  both  at  home  and  with  foreign 
countries,  as  might  be  useful  not  only  to  classes  in  college,  but  to  other 
young  men,  who,  with  less  preparatory  training,  are  about  to  enter  the 
mercantile  profession. 

CAMBRIDGE,  December  28,  1855. 


CONTENTS. 


CHAPTER   I. 

Page 

WEALTH  AND  ITS  TRANSMUTATIONS 1 

Definition  of  Wealth 1 

The  science  of  wealth  founded  on  the  laws  of  human  nature         .         .  2 

Articles  of  wealth  are  quickly  consumed 3 

Wealth  must  be  perpetually  renewed  .         .         .    ^  .  .         .4 

Folly  of  asking  for  an  equal  distribution  of  wealth    ....  4 

How  a  country  recovers  from  devastation    ......  5 

Wealth  changes,  property  may  be  permanent  .....  7 

The  transformations  of  wealth  illustrated     ......  8 

Operation  of  the  Savings' Banks  in  Massachusetts    .         .        .        .  10 

Wealth  is  not  locked  up  in  Banks 11 

But  is  kept  in  constant  activity  and  change     .        .         .         .         .  12 

CHAPTER   II. 

THE    AIMS,    THE  LIMITATIONS,  AND  THE  ADVANTAGES  OF  THE 
STUDY  OF  POLITICAL  ECONOMY:  THE  "LAISSEZ-FAIRE,"  OR 

"  LET-ALONE  "  PRINCIPLE .    13 

There  are  general  laws  that  constitute  a  theory  of  wealth    .      .        .        13 
Political  Economy  not  the  art  of  money-making  .         .         .         .13 

How  far  it  is  a  deductive  science     .......         14 

Legislation  affected  by  one  theory  or  another  of  wealth       .        .        .15 
Errors  in  reducing  the  principles  of  this  science  to  practice       .         .         16 
Importance  of  the  study  of  social  economy    ....  .17 

Necessity  of  teaching  the  doctrines  of  this  science     .         .         .         .         18 

Dignity  and  utility  of  the  science  of  wealth          .         .         .         .         .19 

Selfishness  and  cupidity  made  to  minister  to  the  public  good     .         .         20 
As  in  the  daily  supply  of  a  great  city  with  provisions  .         .         .         .20 

The  laissez-faire  principle  founded  on  this  truth       .         .         .         .         22 

Limitations  of  this  principle 23 

Restrictions  necessary  to  secure  freedom  of  action  to  all   ...         24 
The  protective  policy  removes  obstacles  and  restraints         .        .         .25 
b 


Xii  CONTENTS. 

Page 

What  constitutes  national  independence 26 

Divine  wisdom  and  beneficence  manifested  in  economical  laws     .         .27 

CHAPTER   III. 

How  WEALTH  is  CREATED,  AND  WHAT  CONSTITUTES  EXCHANGE- 
ABLE VALUE 28 

Certificates  of  ownership  distinguished  from  articles  of  wealth       .         .     28 
Human  labor  the  only  source  of  wealth   ......         29 

Extensive  cooperation  necessary         .......     30 

How  this  cooperation  is  obtained    .         .         .         .         .         .         .         31 

Two  elements  of  exchangeable  value  .         .         •         •         •         .32 

Value  and  utility  defined 33 

The  paradox  of  the  creation  of  value  .......     34 

Value  cannot  exist  without  difficulty  of  attainment  ....         35 

Distinction  between  natural  and  artificial  wealth          .         .         .         .36 

Small  earnings  of  scientific  and  literary  men    .        .         .         .         .         37 

Ideas  cannot  be  appropriated     .         .         .         .         .         .         .         .38 

Production  defined 39 

Three  departments  of  industry   ........     40 

Two  classes  of  commodities  that  constitute  wealth    ....        40 

CHAPTER   IV. 
THE  MEASURE  OF  VALUE,  AND  THE  DISTRIBUTION  or  WEALTH 

AMONG   THE    COOPERATING   PRODUCERS   OF   IT      .  .  .  .41 

Definition  and  measure  of  labor       .         .         .         .         .         .         .         41 

Two  limitations  of  this  general  law     .         .         .         .         .         .         .42 

Exchangeable  value  transformed  into  natural  wealth         ...        43 

Exceptions  caused  by  accidents  and  monopolies 44 

Attempts  to  obtain  wealth  without  labor;  lotteries    .         .         .         .         45 

How  the  value  produced  is  distributed        .         .         .         .         .         .46 

Competition  modified  by  custom     .         .         .         .*       .         .         .         47 

How  the  inferior  tenants  in  England  were  dispossessed         .         .         .48 
The  Scotch  Highlanders  owned  the  soil  in  common  property    .         .         49 
Eviction  of  the  Highland  tenantry      .......     50 

Tenant  right  in  Ireland ;  other  effects  of  custom       .         .         .         .         51 

Competition  distributes  values  with  perfect  fairness      .         .         .         .52 

Mutual  dependence  of  agriculture,  commerce,  and  manufactures       .        53 
Utility  of  commerce 54 

CHAPTER    V. 

THE  DIVISION  OF  LABOR:  ITS   BENEFICIAL  AND  INJURIOUS  CON- 
SEQUENCES         55 

Simple  and  Complex  Cooperation        .  ....  56 

Advantages  of  the  Division  of  Labor 57 


CONTENTS.  Xili 

Page 

Increased  dexterity,  corporeal  and  mental 58 

Saving  of  time  and  invention  of  machines 59 

Classification  of  operatives  and  economy  of  labor         .         .         .         .60 

Limits  of  the  division  of  labor          .         .         .         .         .         .         .         61 

The  mental  faculties  dwarfed  by  the  division  of  labor  .         .         .         .62 

CHAPTER    VI. 

THE  NATURE  OF  CAPITAL,  AND  THE  MEANS  OP  ITS  INCREASE      .    63 
Definition  of  capital        .         .         .         .         .         .         .         .         .         63 

How  far  labor  is  limited  by  capital 64 

Advantages  of  capital     .         .         .         .         .         .         .         .         .         65 

Why  not  amassed  by  savages      .         .         .         .         .         .         .         .65 

Frugality  the  source  of  capital         .         .         .         .         .         .         .         66 

Productive  and  unproductive  consumption  .         .         .         .         .67 

Prodigals  do  not  benefit  the  community 68 

Savings  can  only  be  made  from  income       ......     70 

Unproductive  consumption  ought  not  to  be  regretted        .         .         .         70 

Fixed  and  Circulating  Capital  defined 71 

Enumeration  of  articles  ranked  under  these  two  heads      .         .         .         72 

CHAPTER    VII. 

THE   CIRCUMSTANCES  WHICH  FAVOR  THE  GROWTH  OF  CAPITAL  : 

THE  SECURITY  OF  PROPERTY 73 

Vast  influence  of  laws  and  social  institutions        .         .         .         .         .73 

Physical  advantages  have  little  effect 74 

Influence  of  moral  causes  exemplified  in  Spain 75 

Three  principal  causes  of  the  growth  of  capital  ....  76 
Inherited  qualities  of  race  comparatively  unimportant  .  .  .77 
Security  of  property  the  indispensable  prerequisite  .  .  .  .  77 

The  effects  of  insecurity  illustrated 78 

Uncertain  exactions  are  the  most  injurious 79 

Manners  and  opinion,  more  than  law,  create  security  .         .         .         .81 

CHAPTER    VIII. 

THE  INCREASE  OF  CAPITAL  AS   AFFECTED  BY  THE  ENCOURAGE- 
MENT OF  MANUFACTURES,  AND  BY  THE  CONCENTRATION  OF 
THE  PEOPLE  IN  CITIES  AND  TOWNS       .....        82 
Difference  between  skilled  artisans  and  rude  laborers    .        .         .         .82 
Proportion  of  rude  laborers  to  the  whole  population  ...         83 

Loss  suffered  from  a  deficiency  of  skilled  labor  .....  84 
Ireland  compared  with  Massachusetts  in  this  respect  ...  84 
Comparative  amount  of  pauperism  in  these  two  cases  .  .  .  .85 
Ireland  lacks  not  natural  advantages  Yy'  .  .  .  .  .  86 
Rapid  growth  of  capital  in  Massachusetts  .  •  *.  .  .  .  .87 


XIV  CONTENTS. 

P«ge 

Manufacturing  skill  worth  the  price  paid  for  it 

Disadvantageous  exchange  of  rude  produce  for  manufactures      .         .  89 
Manufactures  create  cities  and  towns     . 
Contrast  of  our  Southern  and  Northern  States  in  this  respect 

Growth  of  freedom  and  wealth  in  cities  and  towns          .         .         .  91 
How  colonies  were  formed  in  ancient  times        ..... 

Contrast  of  modern  colonies 

Utah  colonized  on  the  principles  of  the  ancients         ....  95 
Wakefield's  theory  of  colonization 

Trial  of  his  system  in  Australia 97 

American  plan  of  selling  the  public  lands 

Mistaken  policy  of  reducing  the  price  of  land    .....  99 

Manufactures  and  concentration  needed  at  the  West      .         .         .  100 

Too  great  surplus  of  raw  produce     .......  101 

The  wheat-exporting  region  retiring  westward                 .         .        •  102 

CHAPTER   IX. 

THE  INCREASE  OF  CAPITAL  AS  AFFECTED   BY  THE  ADVANTAGES 
AND   REWARDS  WHICH  ARE  HELD  OUT  TO  THE  POSSESSORS 

OF  WEALTH 104 

Frugality  encouraged  when  wealth  brings  honors  .         .         .         .  104 

The  effective  desire  of  accumulation 105 

Civilization  depends  on  the  strength  of  this  desire  .         ...  106 

Accumulation  is  rapid  when  profits  are  high 107 

Low  rates  of  interest  in  Holland  and  England        .         •         •         •  108 

All  classes  enabled  to  make  savings  .......  109 

Great  effects  of  the  aggregate  of  small  savings         .         .         .         .  110 

Savings  of  the  poor  larger  than  those  of  the  rich        .         .         .         .111 

Statistics  of  Savings' Banks 112 

CHAPTER   X. 

THE  INCREASE  OF  CAPITAL  AS  AFFECTED  BY  THE  POLITICAL  AND 

SOCIAL  ADVANTAGES  ATTENDING  THE  POSSESSION  OF  WEALTH  113 

Fixity  of  ranks  and  classes  a  bar  to  the  growth  of  wealth         .         .  113 

Influence  of  castes  in  Egypt  and  India 114 

Mobility  of  society  among  the  Greeks  and  Romans          .         .         .  115 
Slaves  not  much  used  for  profit  by  the  ancients          .         .         .         .116 

Ancient  Italy  cultivated  chiefly  by  freemen    .         .         .         .         .  117 
Caste  excluded  from  the  free  cities  in  the  Middle  Ages      .         .        .119 

Contrast  of  town  and  country  in  those  times          .         .         .         .  120 

Great  prosperity  of  the  republi can  cities 121 

Striking  effects  of  the  absence  of  caste  here  in  America          .        .  122 

Different  aspect  of  society  in  England 124 

Uniform  partition  of  wealth  would  create  general  torpor         .        .  125 

Inequality  is  a  law  of  human  nature          .        .                 ...  126 


CONTENTS. 


The  true  policy  of  society     ....  ...        127 

Equality  would  not  promote  happiness 128 

Joint-stock  companies  take  the  place  of  large  capitalists          .        .        129 
Unfounded  prejudices  against  such  corporations         .         .         .         .130 

CHAPTER    XI. 

THE    MALTHUSIAN  THEORY    OF   POPULATION    CONSIDERED   AND 

REFUTED 131 

The  demand  generally  regulates  the  supply       .....     131 

Land  and  population  not  subject  to  this  law  .....         132 

Ambiguity  in  the  doctrine  of  Malthus        .         .         .         .         .         .133 

Indefinite  power  of  increase  of  the  human  race      .         .        .        .        133 

Rate  of  increase  in , the  United  States        .         .         .         .         .         .134 

The  means  of  subsistence  increase  but  slowly          .         .         .         .         135 

Comparison  of  the  two  rates      .         .         .         .         .         .  .136 

Causes  of  the  more  rapid  increase  in  modern  times         .         .         .         137 

Reasoning  of  Malthus  on  these  facts 138 

Gloomy  consequences  of  his  theory 139 

Effects  of  different  standards  of  living 140 

-  The  theory  may  be  applicable  in  a  remote  futurity          .         .         .         141 
No  excess  of  population  at  present    .         .         .         .         ...         .     142 

The  density  of  population  in  Europe 142 

--'  More  mouths  compensated  by  more  hands 144 

Irish  misery  not  caused  by  over-population     .....         145 

Barbarous  races  tend  to  die  out 145 

Civilized  ones  seek  wealth,  not  food       ......         146 

Commerce  equalizes  the  supply  of  food  everywhere    .         .         .         .147 

£   Hence,  the  whole  earth  is  made  to  feed  any  nation          ...         148 
<-3    The  amount,  not  of  food,  but  of  wealth,  limits  population    .        .         .148 

Causes  of  the  famine  of  1847 149 

Why  more  food  is  not  now  produced 150 

Mankind  can  never  multiply  up  to  the  real  limit    .         .         .         .         151 

Ambiguous  meaning  of  the  word  "tendency" 152 

Use  of  this  ambiguity  by  the  Malthusians 153 

Subsistence  really  tends  to  outrun  population 154 

CHAPTER   XII. 

THE  PRINCIPLES  WHICH  REGULATE  THE  GROWTH  OF  POPULATION  155 

Motives  to  marriage  and  celibacy          .         .         .         .         .         .  156 

Causes  of  rapid  increase  in  a  new  country 157 

Statistical  proofs  of  this  law 158 

The  preventive  check  operates  even  in  Massachusetts        .        .        .  159 

Misery  favors  the  growth  of  population 160 

Necessaries,  decencies,  and  luxuries  defined  *  .         .161 

Varying  use  of  these  words  by  different  classes       .         .         .         .  162 


XVl  CONTENTS. 


CHAPTEK   XIII. 

Page 

THE  THEORY  OF  RENT 164 

Three  leading  theories  of  English  political  economy        .         .         .         164 

Ricardo's  theory  of  rent  explained 165 

Effects  of  unequal  fertility  of  different  soils 166 

Of  unequal  distances  from  market 167 

Of  successive  applications  of  capital 167 

The  result  postponed  by  agricultural  improvements    .         .         .         .168 

The  theory  illustrated  by  Malthus 169 

This  theory  of  rent  a  supplement  to  the  Malthusian  theory         .         .170 
Its  gloomy  consequences        .         .         .         .         .         .         .         .         171 

Opposite  views  of  the  course  of  Providence       .         .         .         .         .172 

Both  theories  suggested  by  the  peculiar  state  of  England         .         .         173 
An  increase  of  population  not  always  injurious  .         .         .         .     1 74 

The  theory  contradicted  by  American  experience  .         .         .         .         175 

And  therefore  inapplicable  elsewhere        .         .  ...     176 

Poorer  soils  not  brought  into  tillage  by  enlarged  population     .         .         177 
Nearness  to  market,  more  than  fertility,  affects  rent  .         .         .         .     1 78 

Rent  regulated  by  the  distribution  of  the  population        .         .         .         179 
Effects  of  concentrating  or  diffusing  population  .         .         .         .180 

Rents  have  retrograded  even  in  New  England       .         .         .         .         181 

Proofs  that  English  rents  depend  on  the  same  cause  ....     182 

Why  rents  are  low  in  France        .         .         .         .         .         .         .         185 

Supposed  case  of  perfectly  equal  distribution     .         .         .         .         .186 

Injurious  results  of  such  an  arrangement         .         .         .         .         .         187 

Consequent  concentration,  and  origin  of  rent     .....     187 

Nature  of  the  monopoly  which  gives  rise  to  rent     .         .         .         .         188 

Ricardo's  theory  inappli cable  to  ground  rents  in  towns        .         .         .189 
Movements  of  English  population  affecting  rent      .         .         .         .         190 

The  payment  of  rent  no  hardship      .         .         .         .         .         .         .191 

A  protective  system  would  raise  rents  at  the  West          .         .         .         192 

CHAPTER    XIV. 
THE  CAUSES  WHICH  AFFECT  THE  RATE  OF  WAGES  .        .        .        193 

Origin  of  the  English  doctrine  of  wages     .         .         .         .         .  .193 

Low  wages  do  not  prove  excess  of  population        .         .         .  .         194 

But  indicate  excessive  numbers  in  the  class  dependent  on  wages  .     195 

Great  inequality  of  property  in  England         .         .         .         .  .         195 

Natural  or  necessary  rate  of  wages    .         .         .         .         .         .  .196 

Effects  of  the  received  standard  of  living        .         .         .         •  .         197 

English  laborers  improvident  because  hopeless  .         .         .         .  .198 

Laborers  elsewhere  not  driven  into  the  labor  market       .         .  .         199 

If  wages  are  low,  few  offer  to  work  for  hire 200 

The  mobility  of  American  life  keeps  up  wages        .         .  201 


CONTENTS.  XV11 

Page 
Emigration  from  one  State  to  another    ......         201 

Natural  standard  of  wages  in  America       ......     202 

Two  causes  of  the  depreciation  of  wages  here         ....        203 

The  immigration  of  foreigners  .......     204 

Statistics  and  causes  of  the  immigration          .....         205 

The  Irish  exodus 206 

High  wages  alone  attract  immigrants      .         .         .  .         .         207 

Small  effect  of  the  depopulation  of  Ireland  on  wages  there  .  .  208 
Irish  misery  the  effect  of  free  trade  with  England  ....  209 
Effect  of  Irish  competition  on  American  labor  .  .  .  .  .210 
The  field  for  employing  industry  contracted  .  .  .  .  .  211 
Ruinous  effects  of  abandoning  the  protective  policy  .  .  .  .212 
Consequences  of  the  ruin  of  the  iron  manufacture  .  .  .  .  213 
Wages  and  profits  sinking  to  the  English  standard  ....  214 

CHAPTER    XV. 

THE  CAUSES  OF   DIFFERENT   RATES  OF  WAGES  IN   DIFFERENT 

EMPLOYMENTS         .........        215 

Ease  or  hardship  of  the  employment          .         .         .         .         .         .216 

Expense  and  difficulty  of  learning  the  business       .         .         .         •         217 
The  liberal  professions  poorly  compensated        .....     218 

Honor  offset  against  wages    .         .         .         .         .         .         .         .         219 

Gratuitous  education  lessens  the  pay          ......     220 

Constancy  or  inconstancy  of  employment       .         .         .         .         .         221 

Trust  reposed  in  the  person  employed       ......     222 

Probability  or  improbability  of  success    .         ...         .         .         .         223 

Small  gains  of  lawyers      .         .         .         .         .         .         .         .         .224 

Monopolies  of  the  guilds  of  trade  .......         225 

Ancient  use  of  the  term  University    .         .         .         .         .         .         .227 

Modern  Trades'  Unions  and  strikes       ......         228 

The  right  to  labor  is  property 229 

Restraints  on  admission  to  the  professions      .....         230 

In  England,  different  grades  of  labor  resemble  castes          .         .         .231 
Poor  Laws  obstruct  the  circulation  of  labor      .....         232 

Head-money  or  bonds  required  of  immigrants    .....     233 

Difficulty  of  transferring  labor        ...  ...         233 

The  division  of  labor  unfits  persons  for  emigration      ....     234 

The  case  of  household  manufactures      ......         235 

And  of  female  labor 236 

CHAPTER   XVI. 

THE  CIRCUMSTANCES  WHICH  DETERMINE  THE  RATE  OF  PROFITS  237 

Exchangeable  value  resolved  into  Wages,  Profits,  and  Rent       .  .237 

But  labor  alone  creates  value         .         .    .'•,  .         .         •         •         •  238 

Ricardo's  doctrine  of  profits      .         .         .         .         .         .         •  .239 


XV111  CONTENTS. 

Page 

Different  significations  of  the  word 240 

Profits  confounded  with  wages  of  management 241 

And  with  insurance  against  loss 242 

How  bankruptcy  is  viewed  in  different  countries        ....     243 

How  habits  of  mind  and  action  affect  profits  .....         244 

Illustrated  by  speculations  in  grain    .......     244 

Why  profits  are  not  equalized  in  different  countries        .         .         .         246 
Profits  vary  proportionally  with  the  rate  of  interest    .         .         .         .247 

Characteristics  of  Ricardo's  method        ......         248 

His  reasoning  confuted  by  facts        .......     249 

Gradual  declension  of  the  rate  of  profit 250 

Profits  are  high  in  newly  settled  countries         .         .         .         .         .251 

Low  rate  of  profit  in  England 252 

Adam  Smith's  explanation  of  the  decline  of  profits     ....     253 
Ricardo  deduces  it  from  the  theory  of  rent     .....         253 

Exposition  of  his  theory 254 

How  the  fall  of  profits  affects  all  employments        ....         256 
The  fall  checked  by  agricultural  improvements  .         .         .         .257 

It  affects  fixed  capital  more  than  circulating 257 

Criticism  of  this  theory 259 

Its  fundamental  statements  already  disproved         ....        260 

CHAPTER   XVII. 

THE  RATE  OF  PROFIT  AS  AFFECTED  BY  THE  LIMITED  EXTENT  OP 
THE  FIELD  FOR  THE  EMPLOYMENT  OF  CAPITAL  :  THE  THEORY 

OF  GLUTS 261 

Theory  of  a  general  over-production  of  wealth       .         .         .         .         261 
But  a  general  glut  is  impossible         .         .         .         .         .         .         .262 

A  glut  of  manufactured  products  is  possible 263 

Effects  of  reducing  the  supply  of  food        ......     264 

A  glut  of  finished  products  is  possible    ......         265 

Three  causes  of  a  glut  of  such  products     .         .         .         .         .         .267 

Effects  of  the  unequal  distribution  of  wealth 268 

Exchange  not  always  profitable .269 

The  purchasing  power  must  be  general          .         .         .         .         .         270 

Where  the  market  for  manufactures  is  largest 271 

Proportion  of  embodied  to  free  labor      .         .         .         .         .         .         272 

Cause  of  high  profits  in  an  infant  settlement       .         .         .         .         .273 

Cause  of  their  decline 274 

Invention  raises  the  rate  again          .         .         .         .         .         .         .275 

Low  profits  increase  the  inequality  of  fortunes         .         .         .         .         276 

And  favor  wild  speculation       .         .         .         .         .         .         .         .277 

Stationary  state  of  wealth  not  to  be  dreaded 278 


CONTENTS. 


CHAPTER   XVIII. 

Page 

THE  THEORY  AND  USES  OF  MONEY 279 

Money  the  universal  garb  and  measure  of  wealth   ....  279 

Former  erroneous  opinions  about  money 280 

Money  a  costly  contrivance 281 

Comparison  of  money  with  roads        .         .         .         .                          .  282 

Loss  of  profit  on  money         ......  .283 

National  wealth  does  not  consist  in  silver  and  gold    .        .        .        .283 

Utility  of  a  general  medium  of  exchange 284 

Any  commodity  may  be  used  as  money     .         .         .                  .         .  285 

Why  metals  are  preferred 285 

Cattle  once  used  as  money .  286 

The  division  of  labor  increases  the  need  of  money          .         .         .  287 

Why  two  or  three  metals  are  used  at  once         .....  288 

Money  not  a  sign,  not  always  a  measure         .         .         .         .         .  289 

Money  measures  values  at  one  time  and  place  .                  .         •         .  289 

How  values  are  measured  at  different  times 290 

And  at  different  places 291 

Real  and  nominal  price  distinguished    ......  292 

Coined  money  has  intrinsic  value 293 

Seigniorage  explained 294 

And  justified 295 

Prevents  the  melting  or  exportation  of  coin  .....  296 

Overvalued  displaces  undervalued  currency 297 

Operations  of  the  Allied  Banks  in  Massachusetts    ....  298 

Their  policy  defended 299 

Different  relative  valuations  of  silver  and  gold       ....  300 

Other  uses  of  the  precious  metals 301 

How  their  relative  values  are  determined       .....  302 

Effects  of  a  depreciation  of  gold  or  silver 303 

Significance  of  the  old  names  of  coins 304 

"  Raisin"  the  standard  ".........  304 

Effects  of  a  rise  in  the  value  of  money 305 

CHAPTER    XIX. 

THE  DISTRIBUTION  OF  THE  PRECIOUS  METALS  THROUGHOUT  THE 
WORLD:  SUBSTITUTES  FOR  MONEY:  BILLS  OF  EXCHANGE: 
THE  COURSE  OF  INTERNATIONAL  TRADE  .  .  .  .306 

Not  as  much  money  as  there  is  merchandise  .....  306 
Effect  of  quickening  or  retarding  the  circulation         .         .         .         .307 

"  Rapidity  of  circulation "  explained      ......  308 

More  business  requires  more  money 309 

The  quantity  not  regulated  by  the  amount  coined  ....  309 

The  quantity  in  each  country  regulates  itself 310 


XX  CONTENTS. 

Page 

One  kind  of  money  may  be  substituted  for  another         .         .        .  811 
Relative  quantities  of  specie  and  paper      .         .         .         .         .         .312 

Specie  may  be  exported  without  affecting  prices    .         .         .         .  313 

Reciprocal  action  of  money  and  prices       ......  814 

Effect  of  an  excess  of  money  on  prices  .         .         .         .         .         .  815 

Rate  of  interest  not  dependent  on  abundance  of  money      .         .         .316 

Causes  and  effects  of  low  prices .         .317 

How  "  accounts  current "  economize  money       .....  318 

Explanation  of  bills  of  exchange    .         .         .         .         .         •         •  319 

The  course  and  par  of  exchange         .                320 

Real  and  nominal  par  of  exchange  with  England    ....  321 

Bills  of  exchange  represent  real  transactions      .....  322 

Exports  must  balance  imports       .         .         .         .         .         .         .  323 

Apparent  excess  of  imports  explained       .         .         .         .         .         .324 

Trade  with  one  country  balanced  by  trade  with  another                   .  325 

Statistics  illustrating  these  principles 326 

Trade  with  England  in  1847-48 327 

When  coin  and  bullion  will  be  exported   ......  328 

Drafts,  checks,  and  bank-bills  explained 329 

Operations  of  a  clearing-house           .......  330 

Adjustment  of  trade  with  the  Western  States          .         .         .         .  331 

Banks  of  deposit  explained       ........  332 

Accounts  closed  without  the  transfer  of  money       ....  333 

Money  often  only  a  hypothetical  medium  of  exchange        .         .         .  334 

CHAPTER    XX. 

THE  FUNCTIONS  OF  BANKS  AND  THE  NATURE  OF   BANK-NOTES: 

THE  OPERATIONS  OF  CREDIT 335 

Three  functions  of  banks 335 

Amount  of  saving  effected  by  the  deposit  function  ....  335 

The  system  of  credit 336 

The  capitalist  not  often  the  manager  of  capital        .        .         .        .  337 

The  subject  of  credit  is  wealth,  not  money 338 

Utility  of  the  credit  system 338 

The  discounting  function  of  banks 339 

Credit  transfers,  but  does  not  create,  wealth 839 

How  and  why  banks  are  established 340 

Sources  of  bank  profits 341 

Mode  of  discounting  notes 342 

Distinction  of  business  and  accommodation  paper    ....  343 

Origin  and  nature  of  bank-notes 344 

Use  of  specie  reserves 345 

Such  reserves  form  not  all  the  bank  assets 346 

Rule  of  discounting  only  "  short  paper  " 347 

Banks  should  supply  only  circulating,  not  fixed  capital        .         .        .  348 

Insecurity  of  land  banks 349 


CONTENTS.  XXI 

Page 

Reflux  of  bank-notes  explained 350 

Interdependence  and  mutual  guaranty  of  the  banks         .        .        .        351 

Banks  are  not  necessarily  banks  of  issue 352 

Cannot  increase  loans  or  notes  at  pleasure 353 

Facts  and  theory  support  this  statement      .        .        ...         .     354 

The  currency  is  a  fixed  quantity 355 

The  public,  not  the  banks,  regulate  the  circulation  ....  355 
Banks  compete  with  each  other  for  their  share  of  the  circulation  .  357 
Artifices  adopted  for  this  purpose  .  .  .  .  >•  .  .  .358 
Difference  between  the  large-note  and  small-note  currency  .  .  359 

The  small-note  currency  should  be  restricted 360 

Peril  of  a  general  suspension 361 

Peril  of  mismanagement  and  failure  of  particular  banks  .  .  .361 
Expedients  for  the  security  of  the  circulation  .  .  .  .  363 

The  Safety  Fund  system •  363 

The  Sub-Treasury  system 364 

Evils  and  insufficiency  of  this  system 365 

Sub-Treasury  drafts  used  as  bank-notes 366 

Laws  cannot  prevent  banking  operations 367 

Accidents  to  which  banks  are  liable  .  .  ~>i  %<  .  .  .  368 
The  Treasury  fund  might  support  a  good  circulation  .  .  .  .369 

Injudicious  tax  on  bank  capital 370 

The  bank  circulation  should  be  taxed          .        .        .        •        .        .371 


CHAPTER    XXI. 

PAPER  MONEY,  AND  ITS  USE  AS  A  REVOLUTIONARY  CURRENCY  373 

Bills  of  credit,  made  legal  tender,  are  paper  money     .        .        .        .373 

The  Colonial  and  the  Continental  currency 374 

Issued  in  excess  and  depreciated 375 

The  French  assignats 376 

Their  great  depreciation 377 

Use  of  paper  money  in  Revolutionary  times 378 

Its  beneficial  consequences  at  first 379 

Its  inevitable  tendency  to  excess 380 

Effect  of  its  depreciation  on  prices 381 

Gives  rise  to  reckless  speculation 382 

Bank  currency  distinguished  from  paper  money 382 

Bank  bills  cannot  be  issued  in  excess 383 

Paper  money  not  returnable  to  the  issuers 384 

Bank-notes  are  thus  returnable 385 

Hardships  of  the  reversion  to  a  specie  currency 386 

Inevitable  revulsion  from  a  Revolutionary  currency        .         .        .  387 

Political  consequences  of  ihis  revulsion        .        .        .        .        .        .  388 

The  value  of  paper  money  regulated  by  its  quantity        .         .         .  389 

Ricardo's  "  Economical  and  Secure  Currency"  .       • .  .  « .  »        .        .  390 

Plan  of  gradual  resumption     .         .        £•.,.    .        ...  •:  -.  ..  >  -     .  391 


CONTENTS. 


CHAPTER    XXII. 

Page 

THE  DECLINE  IN  THE  VALUE  OF  MONEY 892 

Consequences  of  such  a  decline       •        •        •        •        •        •        •  392 

The  value  of  the  precious  metals  depends  on  the  cost  of  their  production  393 

How  much  the  American  mines  increased  the  supply      .        .        .  894 

Effects  of  this  increase 395 

Two  conclusions  from  these  facts 896 

Statistics  of  the  supply  in  the  present  century 397 

Great  fluctuations  of  this  supply 398 

Effects  of  gold  washings  unlike  those  of  silver  mines    .        .        .        .899 

Anticipated  extent  of  the  decline  now  going  on       ....  400 

Relative  values  of  gold  and  silver 401 

In  what  ratio  the  value  of  money  falls 402 

Effects  of  economizing  the  use  of  money 403 

The  present  decline  but  little  retarded  by  a  greater  demand  for  money  404 

No  reason  to  dread  the  decline 405 

Its  effect  on  outstanding  obligations 405 

What  property  will  be  depreciated 406 

Rates  of  interest  will  not  be  permanently  affected       .        .        .        .407 

Only  the  coin  in  active  circulation  affects  prices      ....  408 

The  spirit  of  speculation  ultimately  induced 409 

Specie  reserves  absorbed  by  the  rise  of  prices          .        .        .        .  410 

Probable  future  course  of  the  depreciation 411 

Prices  to  be  equalized  throughout  the  world 412 

Beneficial  effects  of  the  decline 412 

Former  crises  of  a  similar  character 418 

Such  a  decline  not  followed  by  a  reaction 415 

Change  in  the  relative  values  of  gold  and  silver  will  not  indicate  the 

whole  decline 416 

How  the  alteration  in  the  coinage  should  be  made       .        .        .        .417 

What  justice  requires  in  this  respect 418 

How  the  alteration  was  made  in  1853 420 

The  principle  was  borrowed  from  the  English  system      .        .         .  421 

Silver  is  not  now  a  standard  of  value 422 

The  decline  in  the  value  of  money  favors  the  United  States    .        .  423 

CHAPTER    XXIII. 

EFFECT  OF  SPECULATION  ON  PRICES.  —  THE  THEORY  OF  A  COM- 
MERCIAL CRISIS 424 

How  prices  are  adjusted 424 

A  fall  in  price  does  not  always  increase  the  demand    ....  425 

Two  elements  of  the  demand 426 

What  constitutes  the  supply 426 

The  price  equalizes  demand  and  supply 427 


CONTENTS.  XXU1 

Page 

Commerce  anticipates  changes  of  price 428 

Commerce  consists  in  speculation 429 

Speculation  distinguished  from  gambling 429 

Speculation  does  not  enhance  prices  unnecessarily  .        .        .        .  431 

Speculation  in  grain  benefits  the  consumers 432 

Mistakes  in  speculation  correct  themselves 433 

Speculators  cannot  control  the  price  of  grain 434 

Cycle  of  events  in  a  commercial  crisis 435 

A  fever  of  general  speculation 436 

Two  theories  respecting  a  monetary  crisis 437 

Expansion  of  the  currency  not  the  cause  of  the  evil    ....  438 

Not  money,  but  purchases,  affect  prices 439 

Purchases  can  be  made  to  any  extent  without  money ....  440 

No  limit  to  the  expansion  of  credit 441 

Extent  of  land  speculations  in  the  United  States         .        .        .        .442 

No  increase  of  the  currency  needed  'for  such  speculation         .        .  443 

The  currency  not  actually  increased  at  such  times       ....  444 

English  examples  cited  to  this  effect 445 

American  examples 446 

Not  money,  but  disposable  capital,  is  wanted 446 

Money  not  needed  even  to  effect  payments 447 

"  Scarcity  of  money  "  means  "  want  of  capital  to  lend  "    .         .         .  447 

A  moderate  expansion  of  "  loans  and  discounts  "  is  possible         .        .  448 

Fluctuating  amount  of  disposable  capital 449 

Effects  of  the  loan-market  being  gorged 450 

Effects  of  the  consequent  reaction 451 

These  fluctuations  independent  of  the  currency 451 

Other  causes  affect  the  amount  of  disposable  capital         .        .        .  452 

Effects  of  increased  imports  or  diminished  exports       ....  453 

The  bank  reserves  deaden  the  shock 454 

Money  as  a  means  of  effecting  exchanges 455 

Serves  also  as  a  standard  of  value 456 

CHAPTER  XXIV. 

THE  DOCTRINE  OF  INTERNATIONAL  EXCHANGES  ;  THE  POLICY  OF 
ENCOURAGING  DOMESTIC  MANUFACTURES  BY  LAYING  DUTIES 

ON  IMPORTED  GOODS 457 

The  evils  of  excessive  importation  explained 458 

How  any  country  obtains  pay  for  her  exports 459 

Advantages  of  interchange  between  nations 459 

Illustrated  by  the  trade  with  Barbadoes 460 

Our  trade  with  England  explained 461 

Benefits  of  this  trade  sacrificed  by  over-importation     ....  462 

Effect  of  removing  a  protective  tariff 463 

Ruinous  effects  of  the  tariff  of  1846 464 

Interchange  of  raw  material  and  manufactured  goods       .        .        .  465 
C 


CONTENTS. 

Page 

More  imports  obtained  by  lessening  the  price  of  exports      .        .        .  466 

All  three  branches  of  industry  need  development    .        .        .        .  467 

Warning  from  the  experience  of  England 467 

Free  trade  economists  admit  these  principles 468 

Protection  benefits  agriculturists  more  than  manufacturers  .        .469 

Effect  of  doubling  the  duty  on  imported  manufactures     .         .        .  470 
Prices  not  increased  by  the  full  amount  of  the  duty     .         .        .        .471 

Compensation  for  slightly  increased  prices 471 

How  England  has  extended  her  manufactures 472 

Free  trade  applicable  under  certain  circumstances  ....  473 

Cost  of  transportation  acts  in  favor  of  England 474 

Excessive  imports  cause  ruinous  fluctuations  of  price        .         .         .  476 
Taxes  on  articles  bought  for  display  cost  nothing         .         .         .         .477 

Protective  duties  on  them  are  a  clear  saving 478 

Private  and  public  interest  not  always  identical 479 

The  maxim,  "  buy  at  the  cheapest  market,"  examined     .         .         .  480 

Refutation  of  it  from  experience 481 

Fallacious  illustrations  from  extreme  cases 482 

Nations,  like  individuals,  must  serve  an  apprenticeship         .        .         .  483 

Patents  and  copyrights  are  protective  duties 484 

Consequent  admission  respecting  a  protective  system  ....  485 

England's  acquired  skill  and  experience  her  only  advantage    -        -  486 

Former  protection  has  diminished  prices 487 

Need  of  favoring  inventive  skill 488 

The  progress  of  improvement  a  national  advantage      .         .         .        .489 

Individuals  not  so  much  benefited 490 

Summary  of  the  arguments  for  protection 491 

Waste  caused  by  exclusive  devotion  to  agriculture          .        .        .  492 

CHAPTER   XXV. 

HE  DISTRIBUTION  OF  PROPERTY  AS  AFFECTED  BY  THE  LAWS 
REGULATING  THE  SUCCESSION  TO  THE  ESTATES  OF  PERSONS 

DECEASED 493 

Inherited  property  not  a  natural  right 494 

But  natural  equity  limits  the  authority  of  law 495 

Natural  right  limited  to  one's  own  earnings 496 

Landed  property  at  first  a  usurpation 497 

How  it  becomes  a  right 498 

Theory  of  the  Communists  refuted 499 

Proper  rule  for  the  descent  of  property 501 

Different  systems  of  distributing  the  estate 502 

De  Tocqueville  and  Webster  on  laws  of  inheritance        .        .        .  503 

Webster's  prediction  fulfilled 504 

Political  influence  gravitates  towards  property         ....  505 

The  habits  of  the  people  conform  to  the  policy  of  the  law    .         .        .  507 

Excessive  subdivision  ofland  not  to  be  dreaded  508 


CONTENTS.  XXV 

Page 

Division  of  estates  in  France  has  reached  its  limit        ....  509 

Laws  of  the  ancients  respecting  inheritance 510 

Effects  of  the  feudal  law  in  England 511 

Origin  of  the  right  of  primogeniture 512 

And  of  the  law  of  entail 513 

Bacon  and  Smith  on  the  law  of  entail 514 

Perpetuities  forbidden  in  law,  established  in  fact          ....  515 

How  English  estates  are  kept  together 516 

This  custom  worse  than  perpetual  entail 517 

Evils  of  Scotch  perpetual  entails  removed  in  part    .        .        .        .  518 
Two  causes  of  increased  burdens  on  Irish  estates          .        .         .         .519 

Commission  for  the  sale  of  Irish  encumbered  estates        .         .         .  520 

Amount  of  sales  under  this  commission 521 

Consequences  of  the  great  inequality  of  wealth  in  England      .         .  522 

Opposite  state  of  things  in  France 523 

The  monster  farm  system 524 

The  land  produces  less  under  this  system 525 

Beneficial  effects  of  small  properties 526 

Results  of  the  two  systems  taken  side  by  side 527 

Large  estates  divert  much  land  from  production      ....  529 

The  Scotch  Highlands  converted  into  game  preserves         .        .        .  530 

Or  into  sheep  pastures 531 

Systematic  depopulation  of  the  country 532 

Absenteeism  and  middlemen  in  Ireland    .        .        .        .        .        .  533 

Large  estates  make  food  dearer  and  wages  lower         ....  534 

Fearful  proportion  of  laborers  for  hire  in  England  ....  535 

Results  of  the  depopulation  of  the  rural  districts  .        .                .  536 

Benefits  of  the  American  law  of  inheritance 537 

Wealth  creates  wealth,  poverty  generates  poverty       ....  538 

Natural  limit  to  excessive  accumulation 539 

The  English  law  chills  exertion 540 

Preponderance  of  misery  in  Great  Britain 541 

Apologies  for  primogeniture 542 

Great  estates  deaden  exertion  everywhere 543 

Opposite  effects  of  republican  principles 544 

Liberal  use  of  wealth  in  the  United  States 545 


PRINCIPLES 


OF 


POLITICAL    ECONOMY 


CHAPTER    I. 

WEALTH    AND    ITS    TRANSMUTATIONS. 

THE  most  obvious,  though  certainly  not  the  most  impor- 
tant, difference  between  a  civilized  community  and  a  nation  of 
savages  consists  in  the  vastly  greater  abundance,  possessed  by 
the  former,  of  all  the  means  of  comfort  and  enjoyment.  These 
means,  including  the  necessaries,  conveniences,  and  luxuries 
of  life,  are  chiefly  material  objects,  —  such  as  manufactured 
goods,  articles  of  food  and  clothing,  ships  and  buildings,  the 
useful  and  the  precious  metals,  tools  and  machines,  and  orna- 
ments, or  things  designed  to  gratify  the  taste  and  the  senses. 
Some,  however,  are  immaterial,  and  yet  are  just  as  much  ob- 
jects of  desire,  just  as  much  objects  of  barter  and  sale,  as  cloth 
and  bread.  The  legal  knowledge  and  acumen  of  a  lawyer,  for 
instance,  the  vocal  powers  of  a  remarkable  singer,  the  mimetic 
talent  of  an  actor,  the  practised  hand  of  an  ingenious  and  thor- 
oughly-trained artisan,  all  command  a  price  in  the  market 
quite  as  readily  as  any  goods  in  a  shop.  When  an  occasion 
arises,  we  buy  the  services  of  a  lawyer  or  a  physician,  just  as 
we  buy  a  ticket  to  a  concert,  or  an  instrument  of  music  for  a 
drawing-room  .* 

*  Many  Political  Economists  exclude  immaterial  products  from  their  definition  of 
wealth,  because  the  labor  which  is  devoted  to  such  products  "ends  in  immediate 
enjoyment,  without  any  increase  of  the  accumulated  stock  of  permanent  means  of 
1 


2  WEALTH    AND    ITS    TRANSMUTATIONS. 

Now,  the  aggregate  of  all  these  things,  whether  material  or 
.immaterial,  which  contribute  to  comfort  and  enjoyment,  and 
which  are  objects  of  frequent  barter  and  sale,  is  what  we  usu- 
ally call  WEALTH  ;  and  individuals  or  nations  are  denomi- 
nated rich  or  poor,  according  to  the  abundance  or  scarcity  of 
these  articles  which  they  possess,  or  have  at  their  immediate 


Two  questions,  we  are  told,  may  be  asked  respecting  the 
production  of  these  articles:  —  1.  By  what  mechanical  pro- 
cesses are  they  manufactured  or  obtained  ?  To  answer  this 
query,  is  the  business  of  a  man  of  practical  science  or  an  arti- 
san, —  of  a  chemist,  a  mechanic,  or  a  farmer ;  as  Political 
Economists,  we  have  nothing  to  do  with  it.  But  (2.)  we 
may  ask,  On  what  principles  do  men  readily  exchange  these 
articles  for  each  other,  and  what  motives,  what  general  laws, 
regulate  their  production,  distribution,  and  consumption  ? 
Political  Economy  undertakes  to  answer  this  question,  and  is 
therefore  properly  considered  as  one  of  the  Moral  Sciences. 
It  depends,  quite  as  much  as  Politics  and  Ethics,  upon  the 
principles  of  the  human  mind.  It  is  quite  as  possible  to  re- 
enjoyment."  The  man  who  makes  a  fiddle,  they  say,  is  a  productive  laborer,  be- 
cause his  work  remains  as  a  permanent  addition  to  the  stock  of  things  from  which 
men  derive  pleasure ;  but  he  who  only  plays  upon  the  fiddle,  though,  like  Paga- 
nini,  he  earns  £1,000  in  a  single  evening,  adds  nothing  to  the  wealth  of  the  com- 
munity. We  answer,  that  the  characteristic  of  all  wealth  is,  directly  or  indirectly, 
to  satisfy  some  want  or  gratify  some  desire.  The  fiddle  is  but  an  indirect  means  to 
this  end  ;  it  would  gratify  nobody,  —  it  would  not  increase  our  store  of  valuables,  — 
if  the  skill  of  the  practised  musician  could  not  extract  sweet  sounds  from  it.  The 
time  during  which  the  pleasure  endures,  or  the  number  of  occasions  on  which  it 
may  be  repeated,  is  a  point  of  no  importance,  except  so  far  as  it  may  determine  the 
amount,  or  quantity,  of  the  wealth  which  has  been  created.  Food  which  is  ready 
to  be  eaten  is  wealth,  just  as  much  as  the  knives  and  forks  with  which  we  eat  it; 
though  the  former  is  devoured  at  once,  and  there  is  an  end  of  it,  while  the  latter 
may  remain  in  daily  use  for  a  year  or  more. 

"  When  a  tailor  makes  a  coat  and  sells  it,"  argues  Mr.  J.  S.  Mill,  "  there  is  a 
transfer  of  the  price  from  the  customer  to  the  tailor,  and  a  coat  besides,  which  did 
not  previously  exist ;  but  what  is  gained  by  an  actor  is  a  mere  transfer  from  the 
spectator's  funds  to  his,  leaving  no  article  of  wealth  for  the  spectator's  indemnifica- 
tion." We  reply,  that  the  purchaser  obtains  only  a  gratification  of  desire  in  either 
case.  Prom  the  coat,  he  has  moderate  enjoyment  prolonged  for  some  months  ;  but 
he  might  do  without  it,  and  work  in  his  shirt-sleeves.  From  the  theatre,  he  has 
keen  enjoyment,  that  lasts  only  a  few  hours  ;  and  he  may  prefer  such  pleasure  to 
the  luxury  of  additional  clothing.  It  is  inconsistent  to  give  the  name  of  wealth  to 
what  pleases  our  palates  for  a  moment,  and  deny  it  to  what  gives  keener  pleasure 
to  our  ears. 


WEALTH    AND    ITS    TRANSMUTATIONS.  3 

duce  to  general  laws  the  habits  and  dispositions  of  men,  so  far 
as  they  are  manifested  in  their  efforts  for  the  acquisition  of 
wealth,  as  it  is  to  develop,  from  observation  and  consciousness, 
the  laws  of  our  moral  constitution.  Political  Economy  begins 
with  the  supposition,  that  man  is  disposed  to  accumulate 
wealth  beyond  what  is  necessary  for  the  immediate  gratifica- 
tion of  his  wants,  and  that  this  disposition,  in  the  great  major- 
ity of  cases,  is  in  fact  unbounded ;  that  man's  inclination  to 
labor  is  mainly  controlled  by  this  desire  ;  that  he  is  constantly 
competing  with  his  fellows  in  this  attempt  to  gain  wealth ; 
and  that  he  is  sagacious  enough  to  see  what  branches  of  in- 
dustry are  most  profitable,  and  eager  enough  to  engage  in 
them,  so  that  competition  regularly  tends  to  bring  wages, 
profits,  and  prices  to  a  level.  The  science,  then,  is  more 
closely  allied  with  the  Philosophy  of  Mind,  than  with  Natural 
History,  or  the  physical  sciences.  It  has  been  called  Catallac- 
tics,  or  "  the  Science  of  Exchanges  " ;  and,  agreeably  to  this 
notion,  man  himself  has  been  defined  to  be,  an  animal  that 
makes  exchanges  ;  "  as  no  other,  even  of  those  animals  which, 
in  other  points,  make  the  nearest  approach  to  rationality,  has, 
to  all  appearance,  the  least  notion  of  bartering,  or  in  any  way 
exchanging  one  object  for  another." 

With  regard  to  the  articles  that  constitute  wealth,  we  ob- 
serve that  far  the  larger  portion  of  them  are  perishable,  or 
quickly  consumable.  Some  of  them,  like  the  immaterial  prod- 
ucts, are  consumed  at  the  instant  that  they  are  produced ; 
others,  like  articles  of  food,  last  a  little  longer,  but  perish  if  not 
quickly  used.  The  fashion  and  the  fabric  of  manufactured 
goods  soon  decay  and  pass  away,  the  former  being  often  more 
short-lived  than  the  latter.  Tools  and  machinery  wear  out ; 
houses  and  other  buildings  need  constant  repair,  and,  at  stated 
intervals,  must  be  wholly  renewed.  Hardly  anything  but  the 
solid  land  itself — the  great  God-given,  food-producing  ma- 
chine —  is  permanent ;  and  the  exchangeable  value  even  of  the 
land,  (the  only  quality  of  it  which  we  have  to  consider  in  this 
science,)  quickly  diminishes,  and  almost  wholly  disappears,  if 
it  be  not  kept  up  by  the  constant  application  of  labor  and  cap- 
ital, or  by  the  continued  prosperity  of  the  community  who  live 
upon  it.  The  best  situated  land  in  a  populous  city  may  be 
worth  $30  or  $  40  a  square  foot ;  but  if  the  other  articles 


4  WEALTH    AND    ITS    TRANSMUTATIONS. 

which  constitute  the  wealth  of  that  city  —  the  ships  in  her 
harbor  and  the  goods  in  her  shops  —  were  not  perpetually  re- 
newed, the  land  would  deteriorate  in  value  with  great  rapid- 
ity ;  and  if  the  city  should  become,  in  respect  to  population 
and  business,  a  small  and  decaying  village,  the  land  might  not 
be  worth  $  40  an  acre. 

Wealth,  then,  —  and  we  may  crave  attention  to  the  propo- 
sition, for  it  is  an  important  one,  —  wealth  must  be  perpetu- 
ally renewed,  or  it  quickly  disappears.  The  stock  of  national 
wealth  is  like  the  flesh,  blood,  and  bones  of  a  man's  body, 
which  are  in  a  state  of  constant  flux  and  renovation.  Physi- 
ologists tell  us  that  our  bodies  are  entirely  renewed  about  once 
in  seven  years ;  but  the  riches  of  an  opulent  community  are 
not  so  long-lived  even  as  this.  Let  labor  universally  cease,  let 
every  man,  woman,  and  child  rest  with  folded  arms,  or  do 
nothing  but  eat,  drink,  and  be  merry,  and  those  riches  would 
melt  and  waste  like  snow  under  a  July  sun.  National  wealth, 
then,  may  be  more  fitly  compared  to  a  given  portion  or  section 
of  the  waters  of  a  running  stream,  bounded  by  a  few  rods  in 
length  of  the  opposite  banks.  The  water  is  always  changing, 
yet  in  one  sense  is  always  the  same,  so  long  as  the  supply 
from  above  is  maintained ;  but  if  the  springs  in  the  upper 
country  should  be  suddenly  dried  up,  the  efflux  below  would 
drain  the  channel  in  an  hour. 

And  here  is  one  striking  proof,  among  a  thousand  others,  of 
the  inordinate  folly  and  ignorance  of  those  who  cry  out  against 
the  institution  of  property,  and  call  for  an  equal  distribution  of 
all  the  wealth  of  a  community  among  all  its  members. 
"  Riches  have  wings  "  in  a  far  more  immediate  and  practical 
sense  than  these  people  are  at  all  aware  of.  They  always  talk 
as  if  the  national  wealth  was  a  fixed  and  imperishable  quan- 
tity, like  the  land,  the  sunlight,  and  the  air ;  but  as  if,  unlike 
these,  it  was  monopolized  by  a  few,  though  really  sufficient  for 
the  wants  of  all.  Their  blunder  is  quite  as  great  as  would  be 
that  of  an  ignorant  rustic,  who,  after  visiting  the  well-furnished 
market  of  a  populous  city  on  the  Mondays  of  two  successive 
weeks,  and  observing  that  the  stalls  presented  almost  precisely 
the  same  array  of  meats  and  vegetables,  in  the  same  order, 
should  conclude  that  there  had  been  no  change,  and  that,  as 
here  was  a  permanent  stock  of  food  enough  for  all,  while  some 


WEALTH    AND    ITS    TRANSMUTATIONS.  O 

families  in  the  city  were  suffering  from  hunger,  a  general  and 
equal  distribution  of  this  stock,  without  compensation  to  the 
owners,  should  be  ordered,  under  the  idea  that  it  would  make 
any  future  want  of  provision  impossible.  The  possibility  that 
this  great  store  might  all  be  consumed  in  one  day,  that  the 
dealers,  deterred  by  this  spoliation,  might  not  supply  the  mar- 
ket at  all  on  the  next  day,  and  that  many  indigent  families, 
suddenly  finding  all  their  wants  supplied  without  any  effort  on 
their  part,  would  give  up  labor  altogether,  would  never  occur 
to  him.* 

"  This  perpetual  consumption  and  reproduction  of  capital," 
says  Mr.  J.  S.  Mill,  "  affords  the  explanation  of  what  has  so 
Often  excited  wonder,  —  the  great  rapidity  with  which  coun- 
tries recover  from  a  state  of  devastation;  the  disappearance, 
in  a  short  time,  of  all  traces  of  the  mischiefs  done  by  earth- 

*  This  point  was  admirably  illustrated  by  the  late  Marshal  Bugeaud,  in  an  article 
published  in  the  Revue  des  deux  Mondes,  soon  after  the  French  Kevolution  of  1848, 
when  theories  of  Communism  and  Socialism  were  so  rife,  and  were  urged  with  so 
much  violence,  at  Paris,  as  to  menace  the  very  existence  of  society.  I  borrow  a  few 
paragraphs  from  this  admirable  essay. 

"  The  philanthropic  dreamers,  the  demagogues  of  every  age  and  every  country, 
have  seemed  to  believe  that  there  existed  somewhere  a  great  amount  of  riches  given 
by  God,  which  might  suffice  for  all  the  world,  if  a  few  aristocrats  had  not,  with  mer- 
ciless selfishness,  obtained  possession  of  them.  This  idea  is,  unwittingly  perhaps, 
the  basis  of  all  their  systems,  all  their  declamations 

"  It  is  matter  of  astonishment  that  all  eyes  are  not  struck  by  the  truth  written, 
as  it  were,  over  the  whole  surface  of  the  soil,  —  that  there  are  no  riches  but  those 
which  are  produced  by  the  industry  of  every  day,  of  every  year ;  that  the  riches  al- 
ready produced,  the  fruit  of  labor  also,  are  almost  infinitely  small  in  comparison 
with  the  wants  of  a  society  of  thirty-six  millions  of  souls  ;  that  even  if  they  should 
be  taken  from  those  who  have  them  to  be  distributed  to  those  who  have  nothing,  or 
but  a  little,  the  condition  of  the  latter  would  not  be  ameliorated ;  far  from  that,  they 
would  be  impoverished.  The  land  alone,  being  created  by  God,  might  appear,  at 
first  sight,  as  wealth  existing  previously  to  labor,  and  belonging  to  all  the  world. 
This  idea  was  true  at  the  moment  of  creation,  except  that  the  land  is  not,  in  itself, 
wealth  in  the  proper  acceptation  of  the  word ;  it  is  only  a  vast  arena  for  the  labor  of 
civilized  man.  In  its  primitive  state,  it  can  support  only  a  few  savages  upon  the 
fruits  and  roots  of  the  forests.  The  value  which  it  now  has  is  what  labor  has  given 
to  it.  How  many  agesr  how  much  capital,  how  much  toil,  had  to  be  buried  in 'its 
bosom  to  produce  that  which  we  now  see ! The  most  experienced  agricul- 
turists say,  that  '  the  land  is  nothing  but  a  matrix,  a  mould,  or  an  instrument  of  la- 
bor. If  we  were  to  calculate  all  that  landed  estates  have  cost  to  bring  them  into 
cultivation,  not  ever  since  man  has  labored  upon  them,  but  during  only  the  last  two 
centuries,  we  should  find  that  the  sum  was  much  greater  than  the  present  value  of 
those  estates.'  We  refer  now  only  to  the  extraordinary  costs,  such  as  those  of  clear- 
ing the  ground,  draining  the  marshes,  carrying  off  the  rocks  and  stones,  transport- 
1* 


6  WEALTH    AND    ITS    TRANSMUTATIONS. 

quakes,  floods,  hurricanes,  and  the  ravages  of  war.  An 
enemy  lays  waste  a  country  by  fire  and  sword,  and  destroys  or 
carries  away  nearly  all  the  movable  wealth  existing  in  it ;  all 
the  inhabitants  are  ruined,  and  yet,  in  a  few  years  after,  every- 
thing is  much  as  it  was  before.  This  vis  medicatrix  natures 
has  been  a  subject  of  sterile  astonishment,  or  has  been  cited  to 
exemplify  the  wonderful  strength  of  the  principle  of  saving, 
which  can  repair  such  enormous  losses  in  so  brief  an  interval. 
There  is  nothing  at  all  wonderful  in  the  matter.  What  the 
enemy  have  destroyed  would  have  been  destroyed  in  a  little 
time  by  the  inhabitants  themselves ;  the  wealth  which  they  so 
rapidly  reproduce  would  have  needed  to  be  reproduced,  and 
would  have  been  reproduced,  in  any  case,  and  probably  in  as 
short  an  interval.  Nothing  is  changed,  except  that,  during  the 
reproduction,  they  have  not  now  the  advantage  of  consuming 
what  had  been  produced  previously.  The  possibility  of  a 

ing  soil  and  mineral  manures,  planting  trees  and  vines,  building  farm-houses,  and 
furnishing  cattle  and  the  implements  of  husbandry.  We  must  leave  out  the  expenses 
of  the  ordinary  annual  cultivation  of  the  ground,  assthat  is  repaid  by  the  crops. 

"  I  will  ask  the  men  who  have  the  incredible  audacity  to  declare  that  property  is 
robbery,  if  the  ordinary  laborer's  wages  for  the  week  or  the  month  are  not  sacred. 
They  will  answer,  that  certainly  there  is  nothing  more  sacred  in  the  world.  Very 
well !  The  labor  of  months,  of  years,  of  centuries,  which  has  made  property  what 
it  is, — is  not  this  as  sacred  as  the  labor  of  a  week  or  a  month'?  Cease  your  blas- 
phemies, then,  against  property ;  instead  of  saying  that  the  first  person  who  inclosed 
a  field  and  cleared  it  for  cultivation  was  a  fool  or  a  rogue,  bless  him,  honor  him,  re- 
spect his  work  ;  for  without  it,  the  human  race  would  have  perished,  or,  thinly  scat- 
tered over  the  earth,  would  have  lived  in  want  and  misery. 

"  I  think  I  have  already  demonstrated  that  there  is  no  such  thing  as  primitive 
wealth,  existing  antecedently  to  labor,  since  the  land  itself  has  become  an  article  of 
wealth  only  under  the  active  hand  of  man.  It  is  equally  true,  that  the  wealth  al- 
ready created  is  nothing;  that  alone  which  the  labor  of  every  day  and  every  year  is 
constantly  creating,  is  of  great  importance. 

"  The  principal  articles  of  the  wealth  of  a  nation  are,  first,  the  products  of  the 
earth,  which  constitute  the  food  of  man  and  the  raw  material  for  his  clothing  ;  and 
secondly,  the  manufactured  articles  in  which  he  is  dressed,  and  which  give  him  the 
conveniences  and  comforts  of  life. 

"  Now,  are  there  any  aristocrats  who  hold  in  their  hands  the  hundred  and  forty 
millions  of  hectolitres  of  different  sorts  of  grain,  and  the  forty  millions  of  hectolitres 
of  wine,  wool,  hemp,  flax,  meat,  ofl,  &c.,  which  France  must  produce  and  consume  in 
1849  ?  Are  there  other  aristocrats  who  own  the  household  furniture,  the  tools,  and 
materials,  which  are  consumed  in  a  single  year  ?  No  ;  these  must  be  produced  by 
the  incessant  labor  of  all,  or  nearly  all,  persons  in  France.  If  their  labor  should 
cease  only  for  a  few  months,  the  people  would  be  naked  and  would  die  of  famine ; 
for  they  have  not  a  stock  of  wealth  on  hand  large  enough  to  keep  them  in  supply 
during  this  respite." 


WEALTH    AND    ITS    TRANSMUTATIONS.  7 

rapid  repair  of  their  disasters  mainly  depends  on  whether  the 
country  has  been  depopulated.  If  its  effective  population 
have  not  been  extirpated  at  the  time,  and  are  not  starved  after- 
wards, [and  if  their  exertions  are  not  paralyzed  by  the  dread 
of  a  similar  quickly  recurring  calamity,]  then,  with  the  same 
skill  and  knowledge  which  they  had  before,  with  their  land 
and  its  permanent  improvements  undestroyed,  and  the  more 
durable  buildings  probably  unimpaired,  or  only  partially  in- 
jured, they  have  nearly  all  the  requisites  for  their  former 
amount  of  production.  If  there  is  as  much  of  food  left  to 
them,  or  of  valuables  to  buy  food,  as  enables  them,  by  any 
amount  of  privation,  to  remain  alive  and  in  working  condition, 
they  will  in  a  short  time  have  raised  as  great  a  produce,  and 
acquired  collectively  as  great  wealth  and  as  great  a  capital,  as 
before,  by  the  mere  continuance  of  that  ordinary  amount  of 
exertion  which  they  are  accustomed  to  employ  in  their  occu- 
pations. Nor  does  this  evince  any  strength  in  the  principle  of 
saving,  in  the  popular  sense  of  the  term;  since  what  takes 
place  is  not  intentional  abstinence,  but  involuntary  privation." 

This  pregnant  truth,  that  the  whole  stock  of  national  wealth 
is  in  a  constant  and  rapid  process, of  consumption  and  repro- 
duction, is  generally  lost  sight  of,  because  we  see  that  the  for- 
tunes of  individuals,  the  aggregate  of  which  constitutes  the 
national  stock,  are  comparatively  permanent,  and,  as  it  seems, 
do  not  need  to  be  perpetually  renewed.  If  once  raised  consid- 
erably above  a  mere  competence,  and  then  "  invested,"  as  the 
phrase  goes,  with  ordinary  care  and  judgment,  a  man's  prop- 
erty will  continue  apparently  without  change,  all  the  while 
yielding  its  regular  income  or  increase.  If  its  owner  be  not  a 
spendthrift,  an  inebriate,  or  a  simpleton,  it  will  supply  his 
wants  and  gratify  his  tastes,  and  still  grow  by  a  steady  process 
of  accumulation,  the  savings  of  income  being  added  to  the 
capital,  without  ever  encroaching  upon  his  leisure,  or  requiring 
him  to  superintend  a  change  of  its  form.  How  can  this  fact 
be  reconciled  with  the  principles  that  have  just  been  stated  re- 
specting the  nature  of  all  wealth  ?  The  answer  to  this  ques- 
tion brings  us  at  once  to  the  heart  of  the  subject. 

It  is  the  property,  the  ownership,  that  is  unchanged,  and  thus 
the  fortunes  of  individuals  remain  intact ;  the  articles  which 
are  the  subjects  of  that  property  —  which  are  owned  —  are 


8  WEALTH    AND    ITS    TRANSMUTATIONS. 

constantly  changing;  they  are  used  up,  and  then  renewed, 
without  the  owner's  cooperation,  and  often  even  without  his 
knowledge.  Barring  casualties,  unlucky  investments,  and  the 
like,  (which,  being  comparatively  few  and  infrequent,  may  be 
left  out  of  the  account,)  no  man's  property  is  consumed  with- 
out being  replaced  by  the  very  act  of  consumption,  unless  he 
himself,  consciously  and  wilfully,  consumes  or  expends  it  un- 
productively ;  —  that  is,  upon  the  gratification  of  his  own  tastes 
and  appetites,  without  looking  for  a  return  or  replacement. 
To  "  invest "  one's  savings  is  to  lend  them.  Not  having  time, 
inclination,  or  perhaps  ability,  to  use  them  reproductively  to 
advantage,  —  that  is,  to  superintend  the  constant  changes  of 
form  which  they  must  undergo,  or  quickly  perish,  —  we  lend 
them  to  others,  who  can  and  will  direct  their  transformations, 
on  condition  of  receiving  a  small  portion  of  the  profits  of  these 
changes.  For  it  is  also  the  nature  of  wealth,  when  well  man- 
aged, to  grow,  or  increase,  by  each  change  of  form. 

"  Mobilitate  viget,  viresque  acqnirit  enndo." 

To  make  this  clearer,  we  will  analyze  a  single  instance,  — 
the  simplest  one  that  can  be  found.  If  the  earnings  of  an  arti- 
san for  a  year  have  amounted  to  $  300,  he  may  expend  them  all 
upon  food,  clothing,  and  amusement.  In  this  case,  he  spends 
them  all  unproductively,  —  that  is,  without  expecting  a  return 
or  replacement  of  them.  At  the  year's  end,  all  the  advantage 
which  remains  to  him  from  his  year's  labor  is,  that  his 
strength,  health,  and  spirits  are  renewed  or  replaced,  so  that 
he  can  now  go  to  work  and  earn  another  year's  wages. 

But  suppose  that  he  is  frugal  and  ambitious  to  grow  rich. 
He  will  then  contract  his  daily  expenses,  drink  nothing  but 
water,  give  up  all  amusements,  and  thus,  at  the  end  of  the 
year,  he  will  find  that  his  health  and  spirits  are  even  greater 
than  before,  and  that  he  has  saved  perhaps  $  100,  or  one  third 
of  his  earnings.  What  will  he  do  with  this  $  100  ?  In  a  rude 
state  of  society,  among  a  half-civilized  people,  or  under  the 
government  of  a  Turkish  pacha,  property  being  insecure,  he 
would  probably  obtain  it  in  the  form  of  gold  or  silver  coin,  and 
bury  it  in  the  corner  of  his  cellar  or  garden.  There,  sure 
enough,  it  would  remain  without  change,  and  therefore  with- 
out income  or  increase.  But  in  this  country,  in  England,  or 


WEALTH    AND    ITS    TRANSMUTATIONS.  9 

France,  he  would  probably  put  it  in  the  Savings'  Bank ;  that 
is,  he  would  lend  it  to  the  bank,  which,  for  shortness,  we  will 
suppose  to  be  a  bank  both  of  savings  and  discount.  In  conse- 
quence of  this  loan,  the  bank  will  be  able  to  lend  or  discount 
$  100  more  to  one  of  its  customers.  Suppose  a  baker  wishes 
to  extend  his  business,  but  has  not  capital  enough  of  his  own 
to  buy  more  flour  with.  He  borrows  this  $  100  of  the  bank 
for  four  months,  and  with  it  he  immediately  purchases  twenty 
barrels  of  flour  more  than  he  could  otherwise  have  purchased. 
What  he  borrows  of  the  bank  is  not,  in  fact,  the  $  100  bill 
which  is  handed  to  him  across  the  counter,  but  the  twenty 
barrels  of  flour  which  he  buys  with  it;  the  bank-bill  being 
only  a  ticket  or  certificate,  in  which  the  bank  directors  say  to 
the  flour-dealer,  "  Deliver  this  man  twenty  barrels  of  flour,  and 
we  will  pay  you  for  it."  The  flour-dealer  complies,  and  im- 
mediately carries  back  the  bill  to  the  bank,  and  is  paid  for  it 
either  in  hard  specie,  or  in  that  amount  carried  to  his  credit,  or 
in  any  other  form  that  he  may  prefer.  We  may  put  aside, 
then,  in  future,  any  consideration  of  the  bank-bills ;  for  they 
are  nothing  but  tickets  of  transfer,  or  orders  from  the  bank  to 
any  merchant,  asking  him  to  deliver  the  bearer  a  certain 
amount  of  goods,  and  the  bank  will  pay  him  for  them. 

But  let  us  follow  the  laborer's  $  100  of  savings.  In  what 
form  do  they  now  exist  ?  Evidently  they  have  become  twenty 
barrels  of  flour,  which  the  baker  gradually  transforms  into 
many  loaves  of  bread,  and  sells  them  to  his  customers.  Be- 
fore the  four  months  expire,  the  bread  is  all  sold  and  eaten  ;  so 
that  the  $  100  are  now  fairly  consumed.  But  has  their  value 
disappeared  ?  By  no  means.  The  baker's  customers  have 
paid  him  for  this  bread  at  least  $  120,  so  that  he  can  now  re- 
pay the  bank  the  $  100  that  he  borrowed,  with  the  addition  of 
two  dollars  for  four  months'  interest,  and  put  eighteen  dollars 
into  his  own  pocket  as  the  reward  of  his  labor.  The  bank, 
being  again  in  funds,  can  now  lend,  we  will  suppose,  $  102 
worth  of  leather,  for  four  months,  to  an  enterprising  cord- 
wainer,  who  begins  immediately  to  manufacture  it  into  boots 
and  shoes.  Before  his  four  months  have  expired,  these  are  all 
sold,  (half  of  them,  perhaps,  are  half  worn  out,)  and  he  has  re- 
ceived, it  may  be,  $  225  for  them ;  so  that  he  can  now  repay 
the  bank  its  loan  of  $  102,  besides  two  dollars  and  a  fraction 


10  WEALTH    AND    ITS    TRANSMUTATIONS. 

for  interest,  pay  his  workmen  probably  $  100,  for  a  good  deal 
of  labor  was  needed  for  the  consumption  of  that  amount  of 
leather,  and  put  a  little  more  than  twenty  dollars  into  his  own 
pocket.  At  the  end  of  eight  months,  then,  the  bank  has  a 
little  over  $  104  to  let  out  for  another  period  of  four  months. 
A  paper-maker  borrows  this,  buys  rags  with  it,  makes  paper 
out  of  them,  sells  it,  and  with  the  proceeds  he  pays  the  bank 
$  106  and  a  fraction. 

The  year  has  now  expired,  and  our  frugal  laborer,  having 
occasion  to  make  a  different  use  of  his  savings,  goes  to  the 
bank  for  them,  and  receives  $  104.50,  the  bank  retaining  nearly 
two  dollars  as  compensation  for  its  agency  in  the  affair.  Thus 
the  laborer  finds  that,  by  some  process  incomprehensible  to 
him,  the  $  100  which  he  deposited  in  the  bank  for  a  year  has 
hatched  $  4.50,  which  it  certainly  would  not  have  done  if  it 
had  been  simply  locked  up  in  the  vault  for  safe-keeping. 
Could  he  have  followed  that  process,  he  would  have  seen  his 
$  100  successively  becoming,  or  assuming  the  shape  of,  flour, 
bread,  leather,  shoes,  rags,  and  paper ;  and  in  each  of  these 
forms,  in  turn,  he  would  have  seen  it  entirely  consumed  or 
used  up.  The  flour,  leather,  and  rags  have  been  manufac- 
tured into  corresponding  articles,  the  bread  has  been  eaten,  the 
shoes  are  half  worn  out,  and  the  paper  is  covered  with  writing 
and  printing,  so  that  a  new  supply  of  each  is  called  for. 
There  has  been  a  net  gain  at  each  stage  of  the  transaction, 
and  the  total  gain  has  been  fairly  distributed  among  all  the 
parties  to  it,  compensating  each  for  his  labor  or  frugality. 

If  any  one  thinks  the  instance  here  analyzed  is  a  trivial  or 
exceptional  one,  so  that  it  throws  little  light  on  the  general 
theory  of  wealth,  let  him  look  at  the  last  annual  returns  made 
to  the  Legislature  by  all  the  Savings'  Banks  in  Massachusetts, . 
which  show  that  the  amount  now  deposited  in  those  institu- 
tions exceeds  $  23,400,000 ;  that  it  yields  an  annual  average 
dividend  of  over  6|  per  cent;  and  that  the  number  of  depos- 
itors exceeds  117,400,  so  that  the  average  amount  to  the  credit 
of  each  depositor  is  a  fraction  less  than  $  200.  This  aggre- 
gate of  savings  —  made  up,  be  it  remembered,  by  the  labor 
and  frugality  of  Irish  domestics,  small  mechanics,  operatives  in 
great  manufacturing  establishments,  day-laborers  in  the  coun- 
try, and  the  like  —  is  more  than  twice  enough  to  build  and 


WEALTH    AND    ITS    TRANSMUTATIONS.  11 

keep  in  motion  all  the  factories  in  Lowell ;  as  the  aggregate 
capital  of  all  the  great  manufacturing  establishments  in  that 
city,  in  1845,  fell  short  of  eleven  millions.  Observe,  also,  that 
large  sums  are  annually  withdrawn  from  these  institutions,  for 
productive  investment  in  other  ways,  and  the  deficit  thus  made 
is  immediately  supplied  by  fresh  deposits  ;  —  so  that  these  Sav- 
ings' Banks  resemble  great  lakes,  in  which  the  water  ever  re- 
mains at  the  same  level,  though  they  are  constantly  supplying 
running  streams,  which  bear  a  fertilizing  influence  with  them 
all  their  way  towards  the  ocean.* 

We  now  go  back  to  the  principle  first  enunciated,  and 
which  seems  to  be  firmly  established ;  —  that  the  whole  wealth 
of  a  civilized  nation  is  in  a  state  of  constant  flux  and  renova- 
tion, the  apparent  stability  and  unchangeableness  of  the  for- 
tunes of  individuals  offering  no  exception  to  this  principle. 
The  instance  analyzed  also  proves,  that  a  gain,  a  profit,  an  ad- 
dition to  the  national  stock,  is  made  only  at  and  by  these  suc- 
cessive changes  of  form.  What  is  inconsumable  is  also 
necessarily  unproductive.  We  consume  in  order  that  we  may 
produce,  and  we  must  consume  before  we  can  produce.  If 
Scripture  may  be  reverently  quoted  on  such  a  topic,  "that 
which  thou  sowest  is  not  quickened  except  it  die."  The 
wealth  which  is  literally  locked  up  or  buried  only  rots  or 
rusts ;  and  we  might  just  as  well  bury  only  stones  or.  sand  in 
its  place.  But  money  or  wealth  is  not  locked  up  when  placed 
in  banks,  institutions  for  savings,  —  moneyed  corporations,  as 
they  are  called,  —  and  the  like.  These  institutions  are  noth- 
ing but  contrivances  for  collecting  it,  setting  it  in  motion,  and 
making  it  circulate  around  us  like  the  atmosphere  which  we 
breathe.  The  wealth  which  would  otherwise  be  scattered  in 
many  little  hoards,  remaining  idle  because  owned  by  those 
whose  circumstances  would  not  allow  them  to  use  it  to  advan- 
tage, or  the  separate  sums  being  too  small  to  admit  of  a  profit- 
able application,  is,  by  these  means,  brought  together  and  made 

*  The  whole  amount  deposited  in  the  Savings'  Banks  of  Great  Britain  and  Ire- 
land, a  year  or  two  since,  had  risen  to  nearly  $  140,000,000,  the  number  of  individ- 
ual depositors  being  over  one  million.  No  one  can  deposit  more  than  £,  150  in  one 
of  these  institutions,  and  the  sum  is  not  allowed  to  accumulate  to  more  than  £  200 ; 
the  presumption  being,  that,  for  larger  sums,  other  safe  modes  of  investment  can  be 
found. 


12  WEALTH  AND  ITS  TRANSMUTATIONS. 

as  efficient  as  the  vast  accumulations  of  great  capitalists. 
The  aggregate  thus  formed  is  made  to  do  its  full  part  in  sup- 
plying the  lungs  of  industry,  keeping  it  alive  and  active,  and 
making  all  the  parts  of  the  body  politic  and  social  contribute 
to  the  sustenance  and  growth  of  the  whole.  The  twenty-three 
millions  in  the  Savings'  Banks,  and  the  fifty-seven  millions  of 
capital  in  the  banks  of  deposit  and  circulation,  (I  speak  only 
of  Massachusetts,*)  do  not  rest  there,  but  are  at  this  moment 
circulating  around  us,  —  driving  the  wheels  of  our  factories, 
supplying  our  mechanics  with  tools  and  our  tradesmen  with 
goods,  building  and  freighting  our  ships,  bringing  to  us  the 
productions  of  all  habitable  climes,  hurrying  from  one  task  to 
another  with  indefatigable  ardor,  and  assuming  a  thousand 
different  forms  and  hues,  according  to  our  necessities  and  de- 
sires. 

"  Whatever  a  person  saves  from  his  revenue,"  says  Adam 
Smith,  "  he  adds  to  his  capital,  and  either  employs  it  himself 
in  maintaining  an  additional  number  of  productive  hands,  or 
enables  some  other  person  to  do  so,  by  lending  it  to  him  for 
an  interest,  that  is,  for  a  share  of  the  profits."  "  What  is  an- 
nually saved  is  as  regularly  consumed  as  what  is  annually 
spent,  and  nearly  in  the  same  time  too  ;  but  it  is  consumed  by 
a  different  set  of  people.  That  portion  of  his  revenue  which  a 
rich  man  annually  spends  is,  in  most  cases,  consumed  by  idle 
guests  and  menial  servants,  who  leave  nothing  behind  them  in 
return  for  their  consumption.  That  portion  which  he  annually 
saves,  as,  for  the  sake  of  the  profit,  it  is  immediately  employed 
as  a  capital,  is  consumed  in  the  same  manner,  and  nearly  in 
the  same  time  too,  but  by  a  different  set  of  people  ;  by  labor- 
ers, manufacturers,  and  artificers,  who  reproduce,  with  a  profit, 
the  value  of  their  annual  consumption." 

*  The  rapid  increase  of  capital  in  Massachusetts,  as  indicated  by  the  Bank  Re- 
turns, deserves  notice.  The  statistics  to  illustrate  the  passage  in  the  text  were  first 
collected  in  1850;  and  then,  the  amount  lodged  in  the  Savings'  Banks  was  only 
about  thirteen  millions,  and  the  aggregate  capital  in  the  banks  of  deposit  and  circu- 
lation was  but  thirty-seven  millions.  Hence,  in  five  years,  the  savings  of  people  of 
moderate  means  have  increased  seventy-seven  per  cent,  and  bank  capital  has  re- 
ceived an  addition  of  fifty-four  per  cent. 


THE    AIMS    AND    ADVANTAGES    OF    POLITICAL    ECONOMY.        13 


CHAPTER    II. 

, 

STUDY     OF     POLITICAL    ECONOMY  :     THE     "  LAISSEZ-FAIRE,"     OR 
"  LET-ALONE  "    PRINCIPLE. 

WE  are  now  entitled  to  assume,  that  the  theory  of  wealth  is 
a  large  and  complicated  one,  embracing  many  curious  and 
difficult  problems,  and  resting  upon  many  general  principles 
or  laws,  the  discovery  and  development  of  which  constitute  a 
distinct  and  important  science.  One  of  these  laws  or  general 
facts  —  the  transmutations  of  capital  —  has  been  pointed  out 
and  briefly  elucidated.  And  we  perceive  that  it  is  a  fruitful  one, 
pregnant  with  important  conclusions  and  inferences  respecting 
the  institution  of  property  and  the  modes  of  favoring  industry 
and  increasing  national  wealth.  If  the  science  has  been  suc- 
cessfully cultivated,  many  more  such  general  laws  must  have 
been  discovered  in  it,  a  knowledge  of  which  is  all  important  to 
the  statesman,  the  merchant,  and  the  philanthropist.  As  Polit- 
ical Economy  is  expounded  in  the  books,  whether  by  Adam 
Smith,  Ricardo,  Sismondi,  or  Mill,  it  may,  or  may  not,  be  well 
founded  and  trustworthy  in  all  its  parts.  Authorities  differ  on 
many  points.  But  these  men  have  not  been  studying  a  mere 
chimera,  or  wasting  their  energies  in  a  vain  pursuit.  There  are 
general  laws  affecting  the  production  and  distribution  of  wealth, 
whether  they  have  been  discovered  or  not,  and  a  knowledge 
of  these  laws  is  a  very  different  thing  from  the  practical  knowl- 
edge, the  acquaintance  with  details,  and  the  natural  shrewd- 
ness, which  enable  a  man  to  acquire  property,  and  to  take  good 
care  of  it  when  acquired. 

And  this  leads  me  to  remark,  that  Political  Economy  is  not, 
as  many  suppose,  the  art  of  money-making,  any  more  than 
meteorology  is  the  art  of  predicting  the  weather.  It  is  no  art 
at  all,  but  a  science ;  for  its  immediate  end  is  knowledge,  not 
action,  or  the  guidance  of  conduct.  The  meteorologist  says 
that  the  phenomena  of  the  atmosphere  and  the  weather,  irreg- 
ular as  they  are  in  their  occurrence,  and  obscure  as  to  their 
2 


14  THE    AIMS    AND    ADVANTAGES 

immediate  causes,  must  depend  on  the  general  principles  of 
gravity  and  the  equilibrium  of  fluids,  and  must  be  referable  to 
general  laws,  which  are  legitimate  objects  of  investigation. 
He  may  have  studied  these  laws  successfully,  and  still  not  be 
so  able  as  an  old  sea-captain  is,  who  never  opened  a  book  on 
meteorology  in  his  life,  to  tell  what  the  weather  will  be  the 
next  hour  or  the  next  day.  It  is  a  point  of  as  much  interest 
and  importance  to  know  how  a  storm  occurs,  as  to  know  when 
it  will  occur.  So,  after  one  of  those  storms  in  the  commercial 
world  which  are  known  as  "  commercial  crises,"  we  may  rea- 
sonably seek  an  explanation  of  the  phenomenon,  or  the  cause 
of  its  occurrence,  though  this  knowledge  should  not  enable  us 
to  tell  when  another  and  similar  disturbance  will  happen. 

The  general  principles  of  any  science  are  obtained  only  by 
abstraction,  —  by  leaving  out  of  view  many  of  the  details  and 
particulars  which  actually  belong  to  the  case,  and  thus  so  far 
simplifying  it  that  we  can  reason  about  it  with  facility.  The 
conclusions  at  which  we  arrive  by  this  process  are  very  com- 
prehensive, but  do  not  admit  of  immediate  application.  They 
are  true  only  with  certain  qualifications  and  restrictions.  They 
are  involved  in  all  the  phenomena  to  which  they  relate,  and 
have  a  share  in  producing  them  ;  but  they  do  not  determine 
the  whole  of  these  phenomena. 

Political  Economy,  Mr.  Mill  remarks,  is  a  deductive  science, 
so  far  as  it  reasons  from  assumptions,  not  from  facts.  "  It 
supposes  an  arbitrary  definition  of  a  man,  as  a  being  who 
invariably  does  that  by  which  he  may  obtain  the  greatest 
amount  of  necessaries,  conveniences,  and  luxuries,  with  the 
smallest  quantity  of  labor  and  physical  self-denial  with  which 

they  can  be  obtained  in  the  existing  state  of  knowledge 

It  predicts  only  such  of  the  phenomena  of  the  social  state  as 
take  place  in  consequence  of  the  pursuit  of  wealth.  It  makes 
entire  abstraction  of  every  other  human  passion  or  motive, 
except  those  which  may  be  regarded  as  perpetually  antagoniz- 
ing principles  to  the  desire  of  wealth,  —  namely,  aversion  to 
labor,  and  desire  of  the  present  enjoyment  of  costly  indulgen- 
ces. These  it  takes,  to  a  certain  extent,  into  its  calculations, 
because  these  do  not  merely,  like  other  desires,  occasionally 
conflict  with  the  pursuit  of  wealth,  but  accompany  it  always, 
as  a  drag  or  impediment,  and  are  therefore  inseparably  mixed 


OF    POLITICAL    ECONOMY.  15 

up  in  the  consideration  of  it.  Political  Economy  considers 
mankind  as  occupied  solely  in  acquiring  and  consuming 
wealth ;  and  aims  at  showing  what  is  the  course  of  action  into 
which  mankind,  living  in  a  state  of  society,  would  be  impelled, 
if  that  motive,  except  in  the  degree  in  which  it  is  checked  by 
the  two  perpetual  counter-motives  above  adverted  to,  were  ab- 
solute ruler  of  all  their  actions.  Not  that  any  one  was  ever 
so  absurd  as  to  suppose  that  mankind  are  really  thus  consti- 
tuted, but  because  this  is  the  mode  in  which  the  science  must 
proceed. 

"  Political  Economy,  therefore,  reasons  from  assumed  prem- 
ises, —  from  premises  which  might  be  totally  without  founda- 
tion in  fact,  and  which  are  not  pretended  to  be  universally  in 
accordance  with  it.  The  conclusions  of  Political  Economy, 
consequently,  like  those  of  Geometry,  are  only  true,  as  the 
common  phrase  is,  in  the  abstract ;  that  is,  they  are  only  true 
under  certain  suppositions,  in  which  none  but  general  causes 
—  causes  common  to  the  whole  class  of  cases  under  consider- 
ation —  are  taken  into  the  account In  proportion  as 

the  actual  facts  recede  from  the  hypothesis,  the  Political  Econ- 
omist must  allow  a  corresponding  deviation  from  the  strict 
letter  of  his  conclusion ;  otherwise,  it  will  be  true  only  of 
things  such  as  he  has  arbitrarily  supposed,  not  of  such  things 
as  really  exist.  That  which  is  true  in  the  abstract  is  always 
true  in  the  concrete,  with  proper  allowances.  When  a  certain 
cause  really  exists,  and,  if  left  to  itself,  would  infallibly  pro- 
duce a  certain  effect,  that  same  effect,  modified  by  all  the  other 
concurrent  causes,  will  correctly  correspond  to  the  result  really 
produced."  * 

All  legislation  which  is  designed  to  affect  the  economical 
interests  of  society,  or  which  relates  immediately  to  its  com- 
merce, agriculture,  or  manufactures,  is  in  truth  an  application 
of  the  principles  of  some  system  of  Political  Economy  to  prac- 
tice, be  that  system  a  wise  or  a  mistaken  one.  It  is  often  a 
very  injurious  application  of  them,  because  the  circumstances 
which  actually  limit  the  principles  are  lost  sight  of,  and  the 
abstractions  by  which  they  were  obtained  are  forgotten.  Mis- 
chief results ;  and  "  practical  men,"  seeing  that  the  consequen- 

*  Mill's  Essays  on  some  Unsettled  Questions  of  Political  Economy,  pp.  137  -  145. 


16  THE    AIMS    AND    ADVANTAGES 

ces  do  not  square  with  the  theory,  call  in  question  the  science 
itself,  instead  of  attributing  the  error  to  the  faulty  application 
of  it.  Hence  arises  an  unhappy  dissension  between  theory 
and  practice,  to  the  lasting  detriment  of  both. 

The  Political  Economists  themselves  are  somewhat  to 
blame  for  this  result,  by  pressing  too  eagerly  for  the  reduction 
of  their  favorite  doctrines  to  practice,  without  regard  to  the 
particular  circumstances  of  each  case.  The  general  doctrine 
of  Free  Trade,  for  instance,  which  may  be  correct  when  ap- 
plied to  two  nations  which  are  similarly  situated  in  every 
respect,  which  have  grown  up  under  the  same  institutions  and 
the  same  laws,  and  in  which  the  profits  of  capital,  the  wages 
of  labor,  and  the  ratio  of  population  to  territory  are  nearly  on 
a  level,  is  extended  by  a  hasty  generalization  to  two  countries 
that  are  contrasted  with  each  other  in  all  these  respects,  and 
in  its  application  to  which,  to  say  the  least,  the  correctness  of 
the  principle  is  very  doubtful.  We  have  in  this  country  the 
largest  extension  of  the  system  of  free  trade  which  the  world 
has  ever  witnessed ;  we  have  free  trade  between  Maine  and 
Louisiana,  between  California  and  Massachusetts;  and  no 
one  doubts  that  the  system  is  equally  beneficial  to  all  these 
States.  But  before  the  system  is  carried  out  between  England 
and  the  United  States,  we  may  reasonably  inquire  whether  it 
will  not  necessarily  tend  to  an  equalization  of  profits  and 
wages  in  the  two  countries,  and  whether  it  is  desirable  here  to 
hasten  the  operation  of  the  causes  which  are  rapidly  reducing 
the  rates  of  both  to  the  English  standard.  This  subject  will 
be  considered  hereafter  ;  but  I  may  say  here,  that  the  question 
does  not  relate  to  the  correctness  of  the  general  principle  in 
economical  science,  but  only  to  its  applicability  under  partic- 
ular circumstances.  That  all  terrestrial  bodies  gravitate  to  the 
centre  of  the  earth,  is  a  general  law,  which  is  not  disproved  by 
the  floating  of  a  cork  in  a  basin  of  water. 

Another  prejudice  against  Political  Economy  has  arisen 
from  an  error  of  an  opposite  character ;  —  from  too  strict  a  lim- 
itation of  it  to  the  causes  affecting  the  increase  of  national 
wealth,  the  other  interests  of  a  people  being  undervalued  or 
left  out  of  sight.  The  English  Economists  of  Ricardo's  school 
have  most  frequently  fallen  into  this  error ;  looking  merely  to 
the  creation  of  material  values,  they  have  tacitly  assumed  that 


OF    POLITICAL    ECONOMY.  17 

this  was  the  only  interest  of  society,  the  only  end  which  legis- 
lation should  have  in  view.  The  proposition  on  which  they 
act,  though  they  seldom  directly  enunciate  it,  is,  that  the  aug- 
mentation of  national  wealth  is  at  once  the  sign  and  the 
measure  of  national  prosperity.  We  may  admit  that  it  is  so, 
if  the  wealth  be  distributed  with  some  approach  to  equality 
among  the  people.  But  if  the  vast  majority  of  the  nation  is 
beggared,  while  enormous  fortunes  are  accumulated  by  a  few, 
—  if  pauperism  increases  at  one  end  of  the  social  scale  as  rap- 
idly as  wealth  is  heaped  up  at  the  other,  —  then,  even  though 
the  ratio  of  the  aggregate  wealth  to  the  aggregate  population 
is  constantly  growing  larger,  the  tendency  of  things  is  down- 
ward, and,  sooner  or  later,  if  a  remedy  be  not  applied,  society 
will  rush  into  degradation  and  ruin. 

In  order  to  obtain  a  broader  field  of  inquiry,  the  subject  to 
be  discussed  in  this  volume  will  be,  the  general  well-being  of 
society,  so  far  as  this  is  affected  by  the  moral  causes  regulating 
the  production,  distribution,  and  consumption  of  wealth.  It  may 
be  doubted  whether  the  whole  of  this  theme  is  included  within 
the  limits  of  Political  Economy,  properly  so  called ;  —  and 
therefore  I  propose  to  consider  not  only  the  science  itself,  but 
its  application  to  a  particular  case,  —  the  circumstances  and 
institutions  of  the  American  people.  Thus  is  opened  a  wide 
scope  for  investigation.  The  fluctuations  of  national  prosper- 
ity ;  the  various  social  condition  of  different  communities  at 
the  same  period,  and  of  the  same  community  at  different  peri- 
ods ;  the  nature,  and  effect  upon  the  wealth,  happiness,  and 
numbers  of  the  people,  of  the  various  institutions,  laws,  and 
customs  which  have  obtained  in  different  countries  and  at  dif- 
ferent times,  —  might  all  pass  in  review  before  the  subject  would 
be  exhausted.  Hitherto,  history  has  been  in  the  main  a  polit- 
ical record,  —  a  narrative  of  wars,  conquests,  and  changes  in 
the  form  of  government.  But  the  social  economy  of  different 
states  has  now  become  the  chief  object  of  interest  even  to  the 
historian.  Statesmen  have  been  obliged  to  make  the  study  of 
politics  second  to  that  of  political  economy.  Monarchs  now 
strive  to  guard  their  thrones,  not  so  much  by  the  number  and 
efficiency  of  their  standing  armies,  as  by  the  prudent  manage- 
ment of  their  finances,  and  by  their  successful  development  of 
the  agricultural,  commercial,  and  manufacturing  resources  of 
2* 


18  THE    AIMS    AND    ADVANTAGES 

their  people.  They  build  railways,  form  Customs-Unions  to 
relieve  trade  of  its  fetters,  establish  colonies  to  get  rid  of  sur- 
plus population,  and  thus  aim  to  acquire  or  regain  a  firm  basis 
for  that  authority  which  formerly  rested  only  on  prescription 
and  military  force.  Men  now  coolly  count  the  cost,  the  com- 
parative value  in  dollars  and  cents,  of  a  monarchy  and  a  re- 
public. The  idea  of  political  freedom,  of  choosing  their  own 
governors  and  managing  their  own  affairs,  is  no  longer  attrac- 
tive enough  to  lead  the  people,  if  it  be  not  united  with  some 
project  for  a  new  organization  and  a  more  equal  enjoyment  of 
the  goods  of  this  life.  Hence  the  rise  of  so  many  schemes  of 
Socialism  and  Communism,  which  gave  a  character  to  the 
Revolutions  of  1848  wholly  unlike  that  of  any  other  political 
disturbances  recorded  in  the  previous  history  of  the  world. 

Even  if  the  disastrous  consequences  of  the  insane  attempts 
then  made  to  reorganize  society  should  prevent  a  speedy  repe- 
tition of  the  experiment,  there  is  another  danger,  from  which 
no  civilized  community  is  entirely  free,  —  lest  the  several  classes 
of  which  it  is  composed  should  cherish  mutual  jealousy  and 
hate,  which  may  finally  break  out  into  open  hostilities,  under 
the  mistaken  idea  that  their  interests  are  opposite,  and  that 
one  or  more  of  them  possess  an  undue  advantage,  which  they 
are  always  ready  to  exercise  by  oppressing  the  others.  Twen- 
ty years  ago,  Archbishop  Whately  pointed  out  the  full  extent 
of  this  danger  in  a  single  pregnant  question :  —  "  Can  the  la- 
boring classes,  —  and  that,  too,  in  a  country  where  they  have 
a  legal  right  to  express  practically  their  political  opinions,  — 
can  they  be  safely  left  to  suppose,  as  many  a  demagogue  is 
ready,  when  it  suits  his  purpose,  to  tell  them,  that  inequality 
of  conditions  is  inexpedient,  and  ought  to  be  abolished ;  that 
the  wealth  of  a  man  whose  income  is  equal  to  that  of  a  hun- 
dred laboring  families  is  so  much  deducted  from  the  common 
stock,  and  causes  a  hundred  poor  families  the  less  to  be  sus- 
tained ;  and  that  a  general  spoliation  of  the  rich,  and  an  equal 
division  of  property,  would  put  an  end  to  poverty  for  ever  ?  " 
Under  these  circumstances,  we  may  ask  further,  Can  we  safely 
neglect  to  explain  and  teach  the  great  truths  which  Political 
Economy  has  demonstrated;  —  that  all  classes  of  society  are 
inseparably  bound  together  by  a  community  of  interest ;  that 
the  prosperity  of  each  depends  on  the  welfare  of  all ;  that  the 


OF    POLITICAL    ECONOMY.  19 

national  industry  must  be  meagre  and  profitless  in  its  results, 
if  it  has  not  capital  or  concentrated  wealth  to  cooperate  with 
it ;  that  an  equal  division  of  property  would  in  fact  destroy  or 
dissipate  that  which  was  divided ;  and  that  the  only  equality 
of  condition  which  human  nature  renders  possible,  is  an  equal- 
ity of  destitution  and  suffering  ? 

I  need  not  apologize  for  the  science  which  treats  of  the  cre- 
ation of  wealth,  on  the  ground  that  it  relates  only  to  one  of  the 
lower  interests  of  humanity,  and  that  it  is  not  of  so  much  mo- 
ment for  an  individual  or  a  society  to  be  rich,  as  it  is  to  be 
wise,  free,  instructed,  and  virtuous.  It  is  true  that  wealth  is 
one  of  the  lower  elements  or  supports  of  civilization,  and  that 
the  comparative  quantity  of  it  is  but  an  imperfect  index  of  na- 
tional worth  and  national  weU-being.  But  it  is  also  true,  that 
wealth  is  that  element  of  civilization  which  supports  all  the 
others,  and  that,  without  it,  no  progress,  no  refinement,  no  lib- 
eral art  would  be  possible.  Without  property,  without  large 
accumulations  of  wealth,  no  division  of  labor  would  be  possi- 
ble ;  and  without  division  of  labor,  each  man  must  provide  by 
his  own  toil  for  all  his  bodily  wants.  He  must  plant,  sow, 
and  reap  for  himself.  He  must  be  his  own  tailor,  shoemaker, 
housewright,  and  cook.  The  scholar  could  no  longer  devote 
himself  exclusively  to  his  books,  the  man  of  science  to  the  ob- 
servation of  nature,  the  artist  to  the  canvas  or  marble,  the 
physician  to  the  cure  of  diseases,  or  the  clergyman  to  the  care 
of  souls.  All  would  be  bound  alike  by  the  stern  necessity 
of  daily  brutish  toil  on  the  most  repulsive  tasks.  National 
wealth  is  a  condition  of  progress,  —  a  prerequisite  of  civiliza- 
tion. It  is  not  in  itself  ennobling ;  but  it  is  that  which  vivifies 
and  maintains  all  the  other  elements  and  influences  which  dig- 
nify humanity  and  render  life  desirable. 

Even  if  popular  ignorance  and  prejudice  upon  this  subject 
were  not  dangerous  to  the  state,  a  liberal  curiosity  would  not 
rest  satisfied  without  some  knowledge  of  the  laws  affecting  the 
creation  and  production  of  wealth,  —  laws  which  are,  in  truth, 
as  constant  and  uniform  as  those  which  bind  the  material  uni- 
verse together,  and  evince  the  wisdom  and  goodness  of  the 
Creator  quite  as  clearly  as  any  of  his  arrangements  in  the  or- 
ganic kingdom.  Blanco  White,  speaking  of  the  inattention  of 
the  ancients  to  the  philosophy  of  wealth,  compares  their  state 


20  THE    AIMS    AND    ADVANTAGES 

of  mind  to  that  of  children  in  the  house  of  an  opulent  trades- 
man, who,  finding  the  comforts  and  necessaries  of  life  supplied 
to  them  with  mechanical  regularity,  never  inquire  into  the  ma- 
chinery by  which  these  effects  are  produced,  or,  if  they  ever  do 
think  about  it,  suppose  that  breakfast,  dinner,  and  supper  suc- 
ceed one  another  by  the  spontaneous  bounty  of  nature,  like 
spring,  summer,  and  autumn.  It  is  true,  that  men  are  usually 
selfish  in  the  pursuit  of  wealth ;  but  it  is  a  wise  and  benevolent 
arrangement  of  Providence,  that  even  those  who  are  thinking 
only  of  their  own  credit  and  advantage  are  led,  unconsciously 
but  surely,  to  benefit  others.  The  contrivance  by  which  this 
end  is  effected  —  this  reconciliation  of  private  aims  with  the 
public  advantage  —  is  often  complex,  far-reaching,  and  intri- 
cate ;  and  thus  more  strongly  indicates  the  benevolent  purpose 
of  the  Designer.  In  the  instance  already  given,  we  have  seen 
that  the  wealth  of  an  individual,  perhaps  a  sordid  and  covet- 
ous one,  invested  by  him  with  a  view  only  to  his  own  advan- 
tage and  security,  and  to  spare  himself  the  trouble  of  superin- 
tending it,  still  circulates  through  the  community  without  his 
knowledge,  supporting  the  laborer  at  his  task,  supplying  means 
to  the  ingenious  and  the  enterprising  for  the  furtherance  of 
their  designs,  and  assuming  with  facility  every  shape  which 
the  necessities  or  the  convenience  of  society  may  require. 

I  borrow,  with  some  abridgment,  a  simple  and  striking  illus- 
tration of  the  same  great  truth  from  Dr.  Whately. 

"  Let  any  one  propose  to  himself  the  problem  of  supplying 
with  daily  provisions  of  all  kinds  a  city  like  London,  contain- 
ing about  two  millions  of  inhabitants.  Let  him  imagine  him- 
self a  head  commissary,  intrusted  with  the  office  of  furnishing 
to  this  enormous  host  their  daily  rations.  A  failure  in  the  sup- 
ply even  for  a  single  day  might  produce  the  most  frightful  dis- 
tress. Some,  indeed,  of  the  articles  consumed  might  be  stored 
up  in  reserve  for  a  considerable  time ;  but  many,  including 
most  articles  of  animal  food  and  many  of  vegetable,  are  of  the 
most  perishable  nature.  As  a  deficient  supply  of  these,  even 
for  a  few  days,  would  occasion  great  inconvenience,  so  a  re- 
dundancy of  them  would  produce  a  corresponding  waste. 
The  city  is  also  of  vast  extent,  —  a  province  covered  with 
houses,  —  and  it  is  essential  that  the  supplies  should  be  so  dis- 
tributed as  to  be  brought  almost  to  the  doors  of  all  the  inhab- 


OF    POLITICAL    ECONOMY.  21 

itants.  The  supply  of  provisions  for  an  army  or  garrison  is 
comparatively  uniform  in  kind  ;  but  here,  the  greatest  possible 
variety  is  required,  suitable  to  the  wants  of  the  various  classes 
of  consumers.  Again,  this  immense  population  is  extremely 
fluctuating  in  numbers ;  and  the  increase  or  diminution  de- 
pends on  causes  of  which  some  may,  others  cannot,  be  dis- 
tinctly foreseen.  Again,  and  above  all,  the  daily  supplies  of 
each  article  must  be  so  nicely  adjusted  to  the  stock  from  which 
it  is  drawn,  to  the  scanty  or  abundant  harvest,  importation,  or 
other  source  of  supply,  to  the  interval  which  must  elapse  be- 
fore a  fresh  stock  can  be  furnished,  and  to  the  probable  abun- 
dance of  the  new  supply,  that  as  little  distress  as  possible  may 
be  felt ;  —  that,  on  the  one  hand,  the  population  may  not  un- 
necessarily be  put  on  short  allowance  of  any  article,  and,  on 
the  other,  may  be  preserved  from  the  more  dreadful  risk  of 
famine,  which  must  happen  if  they  continued  to  consume 
freely  when  the  stock  was  insufficient  to  hold  out. 

"  Now  let  any  one  consider  this  problem  in  all  its  bearings, 
and  then  reflect  on  the  anxious  toil  which  such  a  task  would 
impose  on  a  board  of  the  most  experienced  and  intelligent 
commissaries,  —  who,  after  all,  could  discharge  their  office  but 
very  inadequately.  Yet  this  object  is  accomplished,  far  better 
than  it  could  be  by  any  effort  of  human  wisdom,  through  the 
agency  of  men  who  think  each  of  nothing  beyond  his  own  im- 
mediate interest,  —  who,  with  that  object  in  view,  perform  their 
respective  parts  with  cheerful  zeal,  and  combine  unconsciously 
to  employ  the  wisest  means  for  effecting  an  object,  the  vast- 
ness  of  which  it  would  bewilder  them  even  to  contemplate. 

"  It  is  really  wonderful  to  consider  with  what  ease  and  reg- 
ularity this  important  end  is  accomplished,  day  after  day,  and 
year  after  year,  through  the  sagacity  and  vigilance  of  private 
interest  operating  on  the  numerous  class  of  wholesale,  and 
more  especially  retail,  dealers.  Each  of  these  watches  atten- 
tively the  demands  of  his  neighborhood,  or  of  the  market  he 
frequents,  for  such  commodities  as  he  deals  in.  The  appre- 
hension, on  the  one  hand,  of  not  realizing  all  the  profit  he 
might,  and,  on  the  other,  of  having  his  goods  left  on  his  hands, 
—  these  antagonist  muscles,  regulate  the  extent  of  his  dealings 
and  the  prices  at  which  he  buys  and  sells.  An  abundant  sup- 
ply causes  him  to  lower  his  prices,  and  thus  enables  the  public 


22  THE    AIMS    AND    ADVANTAGES 

to  enjoy  that  abundance ;  while  he  is  guided  only  by  the  ap- 
prehension of  being  undersold.  On  the  other  hand,  an  actual 
or  apprehended  scarcity  causes  him  to  demand  a  higher  price, 
or  to  keep  back  his  goods  in  expectation  of  a  rise.  Thus  he 
cooperates,  unknowingly,  in  conducting  a  system  which  no 
human  wisdom  directed  to  that  end  could  have  conducted  so 
well,  —  the  system  by  which  this  enormous  population  is  fed 
from  day  to  day. 

"  I  say,  '  no  human  wisdom ' ;  for  wisdom  there  surely  is,  in 
this  adaptation  of  the  means  to  the  result  actually  produced. 
In  this  instance,  there  are  the  same  marks  of  benevolent  design 
which  we  are  accustomed  to  admire  in  the  anatomical  struc- 
ture of  the  human  body.  I  know  not  whether  it  does  not  even 
still  more  excite  our  admiration  of  the  beneficent  wisdom  of 
Providence,  to  contemplate,  not  corporeal  particles,  but  ra- 
tional free  agents,  cooperating  in  systems  not  less  manifestly 
indicating  design,  but  no  design  of  theirs  ;  and  though  acted 
on,  not  by  gravitation  and  impulse,  like  inert  matter,  but  by 
motives  addressed  to  the  will,  yet  accomplishing  as  regularly 
and  as  effectually  an  object  they  never  contemplated,  as  if  they 
were  merely  the  passive  wheels  of  a  machine.  The  heavens 
do  indeed  '  declare  the  glory  of  God,'  and  the  human  body  is 
fearfully  and  wonderfully  made ;  but  man,  considered  not 
merely  as  an  organized  being,  but  as  a  rational  agent  and  as  a 
member  of  society,  is  perhaps  the  most  wonderfully  contrived 
product  of  Divine  wisdom  that  we  have  any  knowledge  of."  * 

It  is  on  a  large  induction  from  such  cases  as  this,  that  polit- 
ical economists  rest  their  most  comprehensive  and  most  noted 
maxim,  —  the  laissez-faire,  or  "let-alone"  principle,  —  the  doc- 
trine of  non-interference  by  the  government  with  the  economi- 
cal interests  of  society.  True,  these  interests  are  in  the  hands 
of  individuals,  who  look  only  to  their  own  immediate  profit, 
and  not  to  the  public  advantage,  or  to  the  distant  future. 
They  are  not  only  selfish ;  they  are  often  ignorant,  short- 
sighted, and  unconscious  of  much  of  the  work  that  they  do. 
But  society  is  a  complex  and  delicate  machine,  the  real  Author 
and  Governor  of  which  is  divine.  Men  are  often  his  agents, 
who  do  his  work,  and  know  it  not.  He  turneth  their  selfish- 

»  Whately's  Lectures  on  Political  Economy,  pp.  103  - 110. 


OF    POLITICAL    ECONOMY.  23 

ness  to  good ;  and  ends  which  could  not  be  accomplished  by 
the  greatest  sagacity,  the  most  enlightened  and  disinterested 
public  spirit,  and  the  most  strenuous  exertions  of  human  legis- 
lators and  governors,  are  effected  directly  and  incessantly,  even 
through  the  ignorance,  the  wilfulness,  and  the  avarice  of  men. 
Man  cannot  interfere  with  His  work  without  marring  it.  The 
attempts  of  legislators  to  turn  the  industry  of  society  in  one 
direction  or  another,  out  of  its  natural  and  self-chosen  channels, 
—  here  to  encourage  it  by  bounties,  and  there  to  load  it  with 
penalties,  to  increase  or  diminish  the  supply  of  the  market,  to 
establish  a  maximum  of  price,  to  keep  specie  in  the  country,  — 
are  almost  invariably  productive  of  harm.  Laissez-faire ;  "  these 
things  regulate  themselves,"  in  common  phrase  ;  which  means, 
of  course,  that  God  regulates  them  by  his  general  laws,  which 
always,  in  the  long  run,  work  to  good.  In  these  modern  days, 
the  ruler  or  governor  who  is  most  to  be  dreaded  is,  not  the  ty- 
rant, but  the  busybody.  Let  the  course  of  trade  and  the  con- 
dition of  society  alone,  is  the  best  advice  which  can  be  given 
to  the  legislator,  the  projector,  and  the  reformer.  Busy  your- 
selves, if  you  must  be  busy,  with  individual  cases  of  wrong, 
hardship,  or  suffering;  but  do  not  meddle  with  the  general 
laws  of  the  universe. 

The  limitations  of  this  "  let-alone "  principle  are  nearly  as 
obvious  as  the  principle  itself.  The  office  of  the  legislator  is 
not,  by  his  own  superior  wisdom,  to  chalk  out  a  path  for  soci- 
ety to  move  in,  but  to  remove  all  casual  and  unnatural  imped- 
iments from  that  path  which  society  instinctively  chooses  for 
itself.  It  is  to  give  wider  scope  and  more  facile  action  to  the 
principle  we  have  just  been  considering,  rather  than  to  hedge 
and  narrow  it  by  artificial  limits  or  petty  restrictions.  Human 
laws,  if  wisely  framed,  are  seldom  mandatory,  or  such  as  re- 
quire an  active  obedience ;  they  are  mostly  prohibitive,  or  de- 
signed to  prevent  such  action  on  the  part  of  the  few  as  would 
impede  or  limit  the  healthful  action  of  the  many.  Vice  and 
crime,  for  instance,  are  stumbling-blocks  in  the  path  of  the 
community ;  they  obstruct  the  working  of  the  natural  laws,  the 
ordinances  of  Divine  Providence,  by  which  society  is  held  to- 
gether, and  all  well-meaning  members  of  it  are  made  to  coop- 
erate, though  unconsciously,  for  each  other's  good.  To  remove 
such  stumbling-blocks,  then,  is  not  to  create,  but  to  prevent, 


24  THE    AIMS    AND    ADVANTAGES 

interference  with  the  natural  order  of  things.  Legislation 
directed  to  this  end  is  only  a  legitimate  carrying  out  of  the 
laissez-faire  principle. 

The  enforcement  of  justice  in  the  ordinary  transactions  be- 
tween man  and  man,  which  often  requires  further  legislation 
than  is  needed  for  the  mere  prevention  of  open  vice  and  crime, 
is  another  instance  of  the  legitimate  exercise  of  authority  by 
the  government.  An  individual  may  not  erect  a  powder-man- 
ufactory in  the  midst  of  a  populous  village,  nor  carry  on  any 
operations  there  which  would  poison  the  air  with  noxious  ex- 
halations. His  neighbors  would  have  a  right  to  call  out  to 
him,  "  Let  us  alone ;  you  endanger  our  lives,  and  prevent  us 
from  pursuing  our  ordinary  occupations  in  safety." 

These  are  internal  impediments  to  the  natural  action  of  soci- 
ety, and  as  such  the  government  is  bound  to  put  them  out  of 
the  way ;  its  action  for  this  purpose  is  widely  distinguished 
from  the  enactment  of  sumptuary  laws,  the  establishment  of  a 
maximum  of  price,  prohibiting  the  exportation  of  specie,  and 
other  obvious  infringements  of  the  laissez-faire  principle.  But 
it  is  also  the  duty  of  the  legislature  to  guard  society  against 
external  dangers  and  hinderances.  Men  are  separated  into  dis- 
tinct communities,  the  action  of  which  upon  each  other  is  not 
so  much  restrained  by  law,  or  by  the  natural  requisitions  of  jus- 
tice, as  is  that  of  individuals  dwelling  in  the  same  community. 
The  law  of  nations  is  a  very  imperfect  code,  and,  from  the 
want  of  any  superior  tribunal  to  enforce  its  enactments,  it  is 
very  imperfectly  observed.  War  is  either  a  present  evil  to  be 
averted  or  alleviated,  or  it  is  a  possible  future  event,  the  occur- 
rence of  which  is  to  be  guarded  against.  For  either  of  these 
ends,  the  action  of  individuals  within  the  community  may 
need  to  be  restrained ;  for  the  safety  of  all,  the  freedom  of  all 
to  pursue  their  lawful  occupations  without  let  or  hinderance 
is  not  to  be  imperilled  through  the  avarice  or  recklessness  of  a 
few.  Accordingly,  not  mere  restraints  upon  importation,  but 
an  absolute  prohibition  of  intercourse,  an  embargo  on  all  navi- 
gation, are  among  the  legitimate  measures,  a  necessity  for 
which  is  created  by  national  dissension  and  hostility. 

Independent  communities  are  not  always  at  war  with  each 
other ;  but  they  are  always  rivals  and  competitors  in  the  great 
market  of  the  world.  This  feeling  of  rivalry  is  whetted  by  the 


OF    POLITICAL    ECONOMY.  25 

different  circumstances  under  which  they  are  placed,  by  the  pe- 
culiarities in  the  condition  of  each,  and  by  the  opposition  of 
interests  which  often  grows  out  of  these  peculiarities.  The 
legislation  of  each  state  is  primarily  directed,  of  course,  to  the 
protection  and  promotion  of  the  interests  of  its  own  subjects ; 
and  thus  it  often  injuriously  affects  the  interests  of  other  na- 
tions. There  is,  therefore,  a  good  deal  of  retaliatory  legisla- 
tion on  the  part  of  different  governments.  There  is  often,  on 
both  sides,  a  keen  measure  of  wits  in  devising  commercial  reg- 
ulations which  shah1  affect,  or  render  nugatory,  measures 
adopted  by  the  rival  nation,  not  exactly  with  a  hostile  intent, 
but  with  an  exclusive  view  to  its  own  interests,  and  therefore 
frequently  with  an  injurious  effect  upon  the  interests  of  others. 
Reciprocity  treaties,  as  they  are  called,  are  sometimes  formed, 
to  obviate  the  evil  effects  upon  both  parties  of  this  keen  spirit 
of  competition,  when  pushed  too  far.  Now,  such  retaliatory 
legislation,  so  far  as  it  operates  upon  the  members  of  the  very 
community  from*  which  it  emanates,  so  far  as  it  limits  or  re- 
strains the  action  of  all  or  a  portion  of  them,  is  not  an  infringe- 
ment, but  an  application,  of  the  laissez-faire  principle.  It  is 
designed  to  procure  for  them  a  larger  liberty  than  they  would 
otherwise  enjoy  ;  if  it  is  effectual,  if  it  answers  its  purpose,  it 
removes  an  impediment  created  by  a  foreign  state  far  more  se- 
rious and  extensive  than  the  obstruction  which  it  imposes.  It 
may,  indirectly  and  incidentally,  turn  industry  from  one  chan- 
nel to  another,  and  make  some  changes  in  the  investments  of 
capital.  But  this  change  is  effected  only  by  opening  one  chan- 
nel, which  would  otherwise,  under  the  effects  of  foreign  com- 
petition, have  remained  entirely  closed,  and  by  rendering  it 
possible  and  profitable  to  turn  capital  to  other  uses  than  those 
to  which  it  was  formerly  limited. 

If  we  suppose  that  the  application  of  native  industry  and 
capital  is  restricted  in  its  range,  not  by  the  legislative  policy 
knowingly  adopted  by  a  foreign  state  for  this  very  purpose,  but 
through  the  superior  natural  advantages  possessed  by  that 
state,  the  same  principle  still  governs  the  result.  By  submit- 
ting to  a  small  restraint  imposed  at  home,  we  get  rid  of  a 
much  larger  obstacle  to  our  freedom  of  action,  created  either 
by  the  commercial  regulations,  finer  climate,  more  fertile  soil, 
more  abundant  capital,  or  larger  skill  and  experience  of  a  rival 
3 


26  THE    AIMS    AND    ADVANTAGES 

community.  The  policy  of  states  leads  them  to  seek  indepen- 
dence of  each  other  in  their  economical,  almost  as  much  as  in 
their  political,  relations ;  or  we  might  better  say,  that  political 
independence  —  that  is,  the  enjoyment  of  distinct  institutions 
and  laws,  chosen  and  established  by  ourselves  —  makes  it  still 
more  desirable  and  necessary  than  it  was  before,  that  we  should 
not  be  entirely  dependent  upon  foreigners  for  the  supply  of 
great  articles  of  consumption  of  prime  necessity,  —  that  we 
should  have  within  our  own  borders,  and  under  our  own  con- 
trol, the  means  of  satisfying  all  our  natural  and  imperative 
wants.  It  is  not  even  desirable  that  Massachusetts  and  Ohio 
should  be 'rendered  so  far  independent  of  each  other,  that  each 
could  obtain  from  its  own  soil,  or  by  the  labor  of  its  own  in- 
habitants, all  that  it  can  need ;  for  these  two  States  are  one  in 
most  of  their  political  relations.  Members  of  the  same  great 
confederacy,  living  under  the  same  laws,  and  each  exercising 
its  due  share  of  influence  in  the  national  legislature,  neither 
has  cause  to  apprehend  the  hostile  or  injurious  action  of  the 
other.  The  political  ties  between  them  are  strengthened  by 
their  dependence  on  each  other  for  a  supply  of  many  of  the 
necessaries  of  civilized  existence.  But  it  is  desirable  that  both 
should  be  independent,  as  far  as  may  be,  of  the  great  powers 
of  Europe,  with  whom  they  cannot  be  sure  of  continued 
friendly  intercourse  for  any  time  beyond  the  present,  and  from 
whom  they  are  always  separated  by  a  great  breadth  of  ocean, 
and  by  dissimilarity  of  customs,  institutions,  and  laws. 

True  independence,  in  an  economical  point  of  view,  does 
not  require  us  to  forego  all  commercial  intercourse  with  other 
nations ;  this  would  be  rather  a  curse  than  a  blessing.  But  it 
does  require  that  each  nation  should  be  able  to  exercise,  with- 
in its  own  Limits,  all  the  great  branches  of  industry  designed  to 
satisfy  the  wants  of  man.  It  must  be  able  to  practise  all  the 
arts  which  would  be  necessary  for  its  own  well-being,  if  it  were 
the  only  nation  on  the  earth.  If  it  be  restricted  to  agriculture 
alone,  or  to  manufactures  alone,  a  portion  of  the  energies  of  its 
people  are  lost,  and  some  of  its  natural  advantages  run  to 
waste.  To  be  so  limited  in  its  sphere  of  occupation,  to  be 
barred  out  from  some  of  the  natural  and  necessary  employ- 
ments of  the  human  race,  through  the  overwhelming  competi- 
tion of  foreigners,  is  a  serious  evil,  which  it  is  the  object  of  a 


OF    POLITICAL    ECONOMY.  27 

protective  policy  to  obviate  or  redress.  On  whatever  other 
grounds  this  policy  may  be  objected  to,  it  is  surely  not  open  to 
the  charge  of  being  an  infringement  of  the  laissez-faire  princi- 
ple, or  a  restriction  of  every  man's  right  to  make  such  use  as 
he  pleases  of  his  own  industry  and  capital.  Its  object  is  not 
to  narrow,  but  to  widen,  the  field  for  the  profitable  employ- 
ment of  industry,  and  to  second  the  working  of  the  beneficent 
designs  of  Providence  in  the  constitution  of  society,  by  remov- 
ing all  artificial  and  unnecessary  checks  to  their  operation. 

I  repeat  it,  then,  that  these  designs,  as  shown  in  the  econom- 
ical laws  of  human  nature,  (i.  e.  in  the  principles  of  Political 
Economy,)  through  their  general  effects  upon  the  well-being 
of  society,  manifest  the  contrivance,  wisdom,  and  beneficence 
of  the  Deity,  just  as  clearly  as  do  the  marvellous  arrangements 
of  the  material  universe,  or  the  natural  means  provided  for  the 
enforcement  of  the  moral  law  and  the  punishment  of  crime. 
The  lowest  passions  of  mankind,  ostentation  and  ambition, 
petty  rivalry,  the  love  of  saving  and  the  love  of  gain,  while 
they  bring  their  own  penalty  upon  the  individual  who  unduly 
indulges  them,  are  still  overruled  for  good  in  their  operation 
upon  the  interests  of  society ;  —  nay,  they  are  made  the  most 
efficient  means  of  guarding  it  from  harm,  and  advancing  its 
welfare.  In  the  vast  round  of  employments  in  civilized  soci- 
ety, there  is  hardly  one  in  which  a  person  can  profitably  exert 
himself,  without  at  the  same  time  profiting  the  community  in 
which  he  lives,  and  lending  aid  to  thousands  of  human  beings 
whom  he  never  saw.  We  are  all  servants  of  one  another 
without  wishing  it,  and  even  without  knowing  it ;  we  are  all 
cooperating  with  each  other  as  busily  and  effectively  as  the 
bees  in  a  hive,  and  most  of  us  with  as  little  perception  as  the 
bees  have,  that  each  individual  effort  is  essential  to  the  com- 
mon defence  and  general  prosperity.  "  This  dependence  and 
combination,"  says  McCulloch,  "is  not  found  only  or  princi- 
pally in  the  mechanical  employments  ;  it  extends  to  the  labors 
of  the  head  as  well  as  those  of  the  hands,  and  pervades  and 
binds  together  all  classes  and  degrees  of  society." 


28  THE    PRODUCTION    OF    WEALTH  : 


CHAPTER    III. 

HOW    WEALTH    IS    CREATED,   AND    WHAT    CONSTITUTES    EXCHANGE- 
ABLE   VALUE. 

A  DISTINCTION  has  already  been  briefly  pointed  out  between 
wealth  and  property.  Wealth  consists  of  the  aggregate  of  ar- 
ticles, chiefly  material  or  tangible,  though  some  immaterial 
products  are  ranked  among  them,  which  supply  the  wants  and 
satisfy  the  desires  of  man ;  and  the  stock  of  national  wealth 
"  is  kept  in  existence  from  age  to  age,  not  by  preservation,  but 
by  perpetual  reproduction.  Every  part  of  it  is  used  or  de- 
stroyed, —  generally  very  soon  after  it  is  produced ;  but  those 
who  consume  it  are  employed  meanwhile  in  producing  more," 
—  not  only  enough  to  replace  what  is  consumed,  but  to  furnish 
a  surplus,  or  profit.  Property  is  the  ownership  of  these  arti- 
cles, and  often  remains  unchanged,  or  fixed,  for  many  genera- 
tions,— just  as  the  river  continues,  though  the  water  is  perpet- 
ually running  out  of  it  into  the  sea. 

As  the  articles  change  while  the  ownership  continues,  there 
must  be  evidences  of  that  ownership,  or  "  tickets  of  transfer," 
as  I  have  once  called  them,  —  mere  representatives  of  wealth, 
which  command  a  price  in  the  market,  and  are  often  sold,  but 
which,  in  themselves,  form  no  addition  to  the  national  wealth. 
Notes  and  mortgages,  bank-bills,  bank-stock,  stock  in  any  cor- 
poration or  in  the  national  debt,  are  such  representatives. 
They  are  mere  evidences  that  the  person  holding  them  is  the 
owner  of  a  larger  or  smaller  portion  of  those  articles  which 
really  constitute  wealth ;  and  their  value  to  him  consists  only 
in  the  fact  that  they  enable  him,  whenever  he  sees  fit,  to  re- 
claim his  property,  or  to  take  possession  of  those  articles  which 
actually  belong  to  him,  though  for  a  time  he  has  trusted  them 
to  others.  The  national  wealth,  therefore,  does  not  consist  of 
the  land,  the  houses,  the  manufactured  goods,  &c.,  plus  the 
public  funds,  bank-stock,  and  the  like.  These  funds  and  stocks 
are  not  wealth  in  themselves,  but  are  certificates  of  ownership 
of  those  articles  which  really  constitute  riches.  Nay,  if  any 


THE  NATURE  OF  EXCHANGEABLE  VALUE.          29 

portion  of  these  stocks  is  held  by  foreigners,  the  aggregate 
wealth  of  the  community  does  not  consist  even  of  the  whole 
amount  of  those  articles  within  its  territory  which  are  properly 
considered  as  wealth,  but  only  of  that  amount  minus  the  evi- 
dences of  indebtedness  to  foreigners.  If  I  buy  $  1,000  worth 
of  government  securities,  I  really  lend  $  1,000  to  the  govern- 
ment, which,  in  return,  mortgages  to  me  a  portion  of  its  reve- 
nues, or  of  the  sum  which  it  annually  raises  by  taxation. 
This  sum  is  that  portion  of  the  valuable  articles  annually  cre- 
ated by  the  labor  of  the  community  which  the  government 
appropriates  to  itself,  as  a  compensation  for  the  care  and  pro- 
tection which  it  affords.  What  I  really  own,  then,  is  this 
share  of  the  useful  articles  annually  produced  by  the  labor  of 
the  whole  people,  which  is  transferred,  first  by  the  people  to 
the  government,  and  then  by  the  government  to  me.  The 
scrap  of  paper,  called  "  public  stock,"  which  I  hold,  is  of  no 
value  whatever,  except  as  it  enables  me  to  claim  without  dis- 
pute my  share  of  this  annual  product. 

These  truths  are  elementary  and  sufficiently  obvious ;  but  it 
was  necessary  to  state  them  in  order  to  clear  the  ground  for 
the  solution  of  the  problem  with  which  we  are  now  concerned : 
—  What  are  the  essential  qualities  of  wealth,  and  how  is  it  cre- 
ated ?  How  is  it,  that  the  national  stock  of  wealth,  which  we 
are  perpetually  consuming,  is  yet  perpetually  reproduced,  and 
that,  too,  with  a  profit,  or  constant  enlargement,  so  that  the 
stock  at  the  end  of  the  year  is  considerably  larger  thnn  it  was 
at  the  year's  commencement  ? 

As  soon  as  we  clearly  perceive  that  wealth  consists  exclu- 
sively of  those  useful  articles,  chiefly  material  or  tangible, 
which  have  been  indicated,  and  that  we  have  nothing  to  do 
with  the  intricate  complications  of  property  which  arise  from 
the  dealings  of  men  in  the  banks  and  the  stock  market,  the  an- 
swer to  this  question  becomes  very  easy.  Wealth  is  created 
by  devoting  human  labor  to  the  production  and  fashioning  of 
these  useful  articles;  —  by  tilling  the  ground  and  raising  har- 
vests of  food  and  of  the  raw  materials  for  manufacture;  by 
spinning,  weaving,  and  sewing ;  by  erecting  houses,  working 
mines,  and  building  ships ;  by  any  and  every  application  of  in- 
dustry which  is  essential  to  the  full  enjoyment  of  these  articles, 
or  which  has  directly  or  indirectly  concurred  in  their  fonnation. 
3* 


dU  THE    PRODUCTION    OF    WEALTH: 

Human  labor,  whether  skilful  or  unskilful,  whether  applied 
alone  or  artfully  assisted  by  natural  agents,  is  the  means ; 
wealth  is  the  product.  Whatever  is  necessary  in  order  that 
the  workman  may  apply  himself  more  directly  and  successfully, 
and  with  less  interruption,  to  his  task,  must  be  considered  as  a 
portion  of  the  industry  which  concurs  in  the  formation  of  the 
article  produced  by  that  workman. 

Thus,  he  must  feel  secure  in  his  employment,  —  secure 
against  violence,  robbery,  or  any  improper  or  wrongful  inter- 
ruption of  his  labor.  Government  affords  him  this  security, 
and  is,  to  this  extent,  a  fellow-producer  with  him,  so  that  it 
rightfully  claims  a  share  —  a  very  small  share  —  of  the  finished 
product.  "  On  the  governor,  and  those  with  whom  he  is  asso- 
ciated, or  whom  he  appoints,"  says  Mr.  Senior,  "  is  devolved 
the  care  of  defending  the  community  from  violence  and  fraud  ; 
and  so  far  as  internal  violence  is  concerned,  and  that  is  the  evil 
most  dreaded  in  civilized  society,  it  is  wonderful  how  small  a 
number  of  persons  can  provide  for  the  security  of  multitudes. 
About  15,000  soldiers,  and  not  15,000  policemen,  watchmen, 
and  officers  of  justice,  protect  the  persons  and  property  of  the 
18  millions  of  inhabitants  of  Great  Britain.  There  is  scarcely 
a  trade  that  does  not  engross  the  labor  of  a  greater  number  of 
persons  than  are  employed  to  perform  this  most  important  of 
all  services." 

The  cooperation  which  the  laborer  requires,  in  a  highly  civ- 
ilized community,  for  the  completion  of  his  task,  in  order  to 
present  the  article  in  a  state  fit  for  use,  is  far  more  extensive 
than  we  are  apt,  at  first  sight,  to  imagine.  Thus,  bread  is  a 
finished  product,  the  total  value  of  which  must  compensate  a 
long  line  of  laborers  who  have  concurred  in  its  formation. 
The  tradesman  who  brings  it  to  your  door ;  the  baker ;  the 
miller ;  the  farm  laborers  who  plough,  sow,  and  reap  ;  the  farmer 
or  land-owner ;  and  all  the  artisans  who  have  fabricated  all  the 
tools  and  instruments  used  by  these  persons,  —  must  all  have 
their  share  of  the  price  finally  paid  for  the  bread  which  is  fully 
prepared  to  be  eaten.  The  extensive  cooperation  of  employ- 
ments, produced  by  the  minute  subdivision  of  labor,  is  the  most 
striking  feature  of  modern  civilization.  The  object  of  this  im- 
mense subdivision  is  to  secure  the  greatest  possible  efficiency 
of  labor,  —  that  everything  may  be  produced  on  the  spot  best 


THE  NATURE  OF  EXCHANGEABLE  VALUE.          31 

suited  for  its  production ;  that  every  step  in  the  process  of  its 
manufacture  may  be  taken  by  the  person  most  capable  of  tak- 
ing it  to  advantage,  and  under  the  most  favorable  circumstan- 
ces ;  and  that  the  article  itself,  when  finished,  may  be  adapted, 
even  in  the  slightest  particulars,  to  the  wants,  tastes,  and  con- 
venience of  those  who  are  to  use  it.  The  value  which  may 
be  added  to  the  article  by  the  numerous  steps  of  this  long  pro- 
cess may  be  very  great.  "  "We  should  probably  be  understat- 
ing the  difference,"  says  Mr.  Senior,  "  if  we  were  to  say  that 
the  last  price  was  a  thousand  times  the  first.  The  price  of  a 
pound  of  the  finest  cotton-wool,  as  it  is  gathered,  is  less  than 
two  shillings.  A  pound  of  the  finest  cotton  lace  might  easily 
be  worth  more  than  a  hundred  guineas." 

We  gain  another  view  of  this  marvellous  cooperation  of  in- 
dividuals, designed  to  make  labor  most  efficient,  by  searching 
out  the  history,  analyzing  the  cost,  and  tracing  the  processes 
of  manufacture,  of  all  the  articles  of  our  own  daily  consump- 
tion. We  think  it  little  to  sit  down  to  a  table  covered  with 
articles  from  all  quarters  of  the  globe  and  from  the  remotest 
isles  of  the  sea;  —  with  tea  from  China,  coffee  from  Brazil, 
spices  from  the  East  and  sugar  from  the  West  Indies,  knives 
from  Sheffield,  made  with  iron  from  Sweden  and  ivory  from 
Africa,  with  silver  from  Mexico,  and  cotton  from  South  Caro- 
lina, all  being  lighted  with  oil  brought  from  New  Zealand  or 
the  Arctic  Circle.  Still  less  do  we  think  of  the  great  number 
of  persons  whose  united  agency  is  required  to  bring  any  one 
of  these  finished  products  to  our  homes  ;  —  of  the  merchants, 
insurers,  sailors,  ship-builders,  cordage  and  sail-makers,  astro- 
nomical-instrument makers,  men  of  science,  and  others,  who 
must  concur  before  a  pound  of  tea  can  appear  in  our  market. 
In  view  of  these  circumstances,  it  is  no  exaggeration  to  say, 
that  the  humble  artisan,  who  spends  his  life,  to  adopt  Adam 
Smith's  illustration,  in  making  the  eighteenth  part  of  a  pin, 
and  is  hardly  fitted  for  any  higher  employment,  still  taxes  the 
industry  of  half  the  human  race,  and  lays  under  contribution 
the  four  quarters  of  the  globe,  to  supply  his  daily  wants. 

How  is  it,  that  while,  in  these  days,  men  will  not  often  labor 
for -nothing,  and  while  the  artisan  himself  produces  nothing 
but  the  fraction  of  a  pin,  he  is  still  able  to  consume  so  great 
a  variety  of  products,  and  to  make  the  industry  of  so  vast  a 


32  THE   PRODUCTION   OF   WEALTH'. 

multitude  tributary  to  his  comforts.  The  answer  may  be  given 
in  one  word ;  —  by  exchange.  As  human  labor  is  the  only  mo- 
tive power,  so  capability  of  exchange  is  the  sole  directing 
agent,  in  the  great  social  machine  for  the  production  of  wealth. 
The  immediate  measure  of  the  wealth,  when  produced,  is,  not 
its  utility,  but  its  exchangeable  value  ;  and  Political  Economy 
itself,  as  I  have  already  remarked,  has  been  denominated  Cat- 
allactics,  or  the  Science  of  Exchanges. 

We  come,  then,  to  an  analysis  of  exchangeable  value,  in  or- 
der to  find  a  basis  for  a  theory  of  wealth.  What  is  it  that 
constitutes  value  in  exchange,  and  why  do  various  articles 
possess  it  in  such  unequal  proportions  ?  The  answer  is,  that 
exchangeable  value  consists  of  two  elements,  —  utility,  and 
difficulty  of  attainment.  The  article  valued  must  in  some 
measure  be  useful ;  that  is,  it  must  be  adapted  to  satisfy,  either 
directly  or  indirectly,  some  natural  want  or  artificial  desire  of 
men ;  and  it  must  also  be  more  or  less  difficult  to  be  had. 
These  elements  may  coexist  in  very  different  proportions ;  but 
in  one  degree  or  another  they  must  both  be  present,  or  the  ar- 
ticle has  no  value  in  exchange.  It  may,  for  instance,  be  very 
useful ;  it  may  be  an  article  of  prime  necessity,  absolutely  es- 
sential to  the  existence  of  man.  Yet  if  there  be  no  difficulty 
in  the  way  of  its  attainment,  if,  like  the  air,  the  water,  and  the 
sunlight,  the  supply  of  it  be  inexhaustible  and  open  to  all  the 
world,  then  it  has  no  exchangeable  value.  It  forms  no  part  of 
what  is  usually  called  wealth.  Supply  the  element  which  was 
lacking,  —  only  make  the  article  hard  to  be  procured,  as  water 
is,  in  the  midst  of  the  sandy  desert  of  Sahara,  or  as  air  was  to 
Mr.  Holwell  and  his  companions  in  the  Black  Hole  at  Cal- 
cutta, and  men  will  give  all  that  they  have  in  the  world  for  a 
single  draught  of  either.  On  the  other  hand,  it  may  be  very 
difficult  of  attainment ;  it  may,  like  some  of  the  most  refined 
products  of  chemical  analysis,  require  the  labor  of  years,  the 
greatest  scientific  skill,  and  an  expenditure  of  the  most  costly 
materials,  before  it  can  be  procured.  Yet  if  it  be  not  useful, 
if  it  do  not  satisfy  some  want  or  desire,  however  artificial  or 
irrational  that  desire  may  be,  it  commands  no  price  in  the  mar- 
ket ;  it  has  no  exchangeable  value. 

But  we  do  not  here  speak  of  abstract  utility,  or  of  that  util- 
ity which  is  determined  by  reason  and  measured  by  a  philo- 


THE  NATURE  OF  EXCHANGEABLE  VALUE.          33 

sophical  standard.  Utility  here  means  nothing  but  fitness  or 
capability  to  satisfy  any  desire  of  men,  however  unreasonable, 
extravagant,  or  capricious  that  desire  may  be.  If  men  are  so 
foolish  as  to  prize  highly  many  articles  which  answer  no  pur- 
poses but  of  vain  ostentation  or  gross  and  sensual  enjoyment, 
it  is  not  for  the  political  economist,  who  views  things  only  as 
they  are,  not  as  they  ought  to  be,  to  censure  their  folly.  He 
leaves  this  office  to  the  moralist  or  the  preacher.  The  fact 
that  such  articles  are  coveted,  from  whatever  motive,  is  enough 
to  bring  them  within  his  definition  of  wealth ;  which  defini- 
tion, it  is  evident,  only  expresses  the  common  sentiment  of 
mankind. 

One  factitious  desire,  it  is  curious  to  observe,  is  created 
solely  by  the  difficulty  of  obtaining  its  object.  Thus,  books, 
coins,  and  shells  are  often  prized  merely  from  their  rarity,  or 
the  difficulty  of  procuring  duplicates  of  them ;  and  in  the  case 
of  books  this  passion  has  gone  so  far,  that  it  has  been  aptly 
called  bibliomania,  or  book-madness.  An  old  volume,  which, 
for  all  the  proper  purposes  of  a  book,  is  absolutely  worthless, 
since  no  person  in  his  senses  would  ever  think  of  reading  it,  if 
it  happens  to  be  what  is  called  a  unique  copy,  may  command 
a  price  equal  to  that  of  a  fine  painting  by  one  of  the  old  mas- 
ters. And  this  last  instance  shows  also,  that  the  want  or  taste 
which  the  article  gratifies,  and  in  gratifying  which  its  utility, 
and  consequently  its  exchangeable  value,  consists,  may  not  be 
a  common  one,  —  may  be  shared,  in  fact,  only  by  a  very  few 
persons  in  the  community.  Very  few,  certainly,  are  capa- 
ble of  appreciating  a  Raphael  or  a  Correggio,  or  of  seeing  in 
it  those  beauties  which  make  it  command  a  price  equal  to  a 
king's  ransom. 

As  the  words  value  and  utility  are  often  used  in  the  moralist's 
sense,  or  according  to  their  philosophical  import,  it  is  neces- 
sary to  give  this  caution  once  for  all ;  —  that  whenever  in  fu- 
ture they  are  here  used,  they  must  be  understood  only  in  their 
politico-economical  signification.  By  value,  we  mean  only  ex- 
changeable value ;  by  utility,  we  mean  only  that  utility  which 
is  an  element  of  wealth,  and  which  consists  in  fitness  to  satisfy 
any  want  or  desire,  however  irrational,  that  is  felt  by  any  num- 
ber of  men. 

This  analysis  of  value,  this  explanation  of  what  wealth  is, 


34  THE    PRODUCTION   OF    WEALTH  : 

leads  us  immediately  to  an  understanding  of  the  manner  in 
which  wealth  is  created.  As  the  essence  of  value  consists  in 
difficulty  of  attainment,  so  the  labor  which  overcomes  that  dif- 
ficulty is  the  great  means  of  producing  value,  or  creating 
wealth ;  and  everything  which  diminishes  that  difficulty  is  to 
be  considered  as  labor,  —  is  entitled  to  be  called  by  that  name, 
for  it  is  recognized  and  compensated  as  such  by  the  commu- 
nity. And  here  is  the  great  paradox  of  Political  Economy :  — 
value  depends  on  difficulty  of  attainment;  the  only  way  of 
creating  values  is  to  lessen  or  overcome  that  difficulty ;  but  as 
soon  as  all  difficulty  is  overcome,  when  there  is  no  longer  any 
obstacle  in  the  way  between  man  and  the  gratification  of  his 
desire,  then  value  also  disappears,  and  the  boundless  wealth, 
which  seemed  just  within  our  grasp,  is  suddenly  changed,  as 
by  a  magical  incantation,  into  dross  or  nothingness.  Every 
step  taken  towards  removing  the  difficulty  is  a  step  in  advance, 
—  a  production  of  wealth,  —  an  addition  to  our  individual  store 
and  to  the  national  opulence.  But  just  when  we  have  taken 
the  last  step,  and  reached  the  spot  where  we  had  fondly  sup- 
posed that  unbounded  riches  would  be  our  reward,  the  vision 
changes,  and  all  our  supposed  wealth  —  both  that  which  we 
had  hoped  to  gain  by  this  last  step,  and  that  which  we  had 
previously  acquired  —  becomes  an  airy  nothing.  Thus  to 
poor  mortals  engaged  in  the  pursuit  of  riches  is  realized  the 
fable  of  Sisyphus,  and  an  instructive  moral  is  inculcated. 

"  With  many  a  weary  step  and  many  a  groan, 
Up  the  high  hill  he  heaves  a  huge  round  stone ; 
The  huge  round  stone,  resulting  with  a  bound, 
Thunders  impetuous  down,  and  smokes  along  the  ground." 

This  paradox  is  not  created  merely  by  an  abuse  of  abstract 
definitions  and  theoretical  reasoning.  The  seeming  contradic- 
tion is  a  literal  fact,  as  may  be  clearly  shown  by  a  practical 
illustration.  And  that  I  may  not  be  accused  of  bringing  an 
obscure  or  far-fetched  example,  I  will  take  that  which,  in  all 
ages  and  all  countries,  has  been  recognized  as  preeminently  an 
article  of  value,  and  identified  with  wealth  itself.  Gold  surely 
possesses  the  highest  value  in  exchange,  and  is  eminently  dif- 
ficult of  attainment.  The  story,  first  promulgated  in  the  win- 
ter of  1848-9,  that  it  abounded  in  the  soil  of  California, 
caused  as  much  excitement  and  agitation  in  this  country,  and 


THE  NATURE  OF  EXCHANGEABLE  VALUE.          35 

indeed  throughout  the  civilized  world,  as  would  have  been  cre- 
ated by  another  battle  of  Waterloo,  or  by  the  reappearance  of 
Napoleon  from  the  tomb.  The  story  proved  to  be  well  found- 
ed ;  and  the  consequence  was,  that  within  six  months  tens  of 
thousands  of  our  enterprising  countrymen  were  either  wending 
then*  toilsome  way  over  the  great  steppes  of  our  Western  desert, 
and  through  the  frightful  passes  of  the  Sierra  Nevada,  where 
the  route  was  strewed  with  the  whitened  bones  of  their  prede- 
cessors who  had  perished  of  starvation,  or  were  encountering 
the  manifold  perils  of  a  four  months'  voyage  round  Cape 
Horn,  in  the  hope  of  making  their  fortunes  in  this  new  El 
Dorado.  Did  it  ever  occur  to  one  of  them,  that  their  hopes 
would  be  just  as  much  frustrated  by  finding  that  the  precious 
metal  there  was  too  plentiful,  as  by  ascertaining  that  it  was 
not  to  be  found  at  all  ?  But  suppose  that  the  most  exagger- 
ated reports  had  been  correct,  —  that  all  the  rocks  of  the  Sierra 
Nevada  itself  were  composed  in  great  part  of  gold,  —  that  there 
were  gold  mountains  in  California,  just  as  there  are  iron  moun- 
tains in  Missouri.  Is  it  not  certain,  that  the  value  of  gold  all 
over  the  world,  almost  at  once,  would  sink  to  about  the  same 
point  with  iron  ?  Then  carry  the  supposition  one  step  farther, 
—  the  last  step  that  I  have  spoken  of.  Imagine  that  it  is  not 
necessary  to  go  to  California  for  this  metal,  but  that  our  own 
streets  are  paved  and  our  gutters  lined  with  gold,  which  also, 
in  lumps,  strews  the  whole  face  of  the  country.  Is  it  not  evi- 
dent, that  it  would  instantly  become  as  valueless  as  the  stones 
and  dirt  which  now  cover  our  streets  and  roads  ? 

How  vain,  then,  is  it  to  expect  that  wealth  can  ever  be  cre- 
ated without  labor,  which  is  its  natural  and  necessary  price ! 
Gold  is  now  so  precious  precisely  because  so  much  labor  is  re- 
quired to  obtain  it.  What  a  pity  it  is  that  the  old  alchemists, 
many  of  whom  were  the  most  learned  men  of  their  times,  and 
who  wasted  fortune  and  life  in  their  vain  pursuit,  could  not  have 
foreseen  that  the  philosopher's  stone,  when  discovered,  would 
be  as  worthless  as  another  stone,  which  should  have  the  prop- 
erty of  turning  everything  it  touched  into  granite ! 

The  useful  metals,  generally,  possess  value  Justin  proportion 
to  the  fewness  and  unproductiveness  of  the  mines  whence  they 
are  obtained,  and  to  the  labor  required  for  bringing  them  to 
market  and  giving  them  the  forms  and  qualities  that  fit  them 


36  THE    PRODUCTION    OF    WEALTH: 

for  use.  Iron  in  this  country  owes  nearly  all  its  value  to  the 
labor  expended  in  extracting  it  from  the  ore  and  manufactur- 
ing it ;  for  iron  ore  is  so  plentiful,  that,  except  in  a  few  favor- 
able localities,  where  fuel  is  abundant  and  transportation  easy, 
an  acre  of  ground  with  iron  ore  for  its  surface  is  worth  hardly 
as  much  as  the  same  extent  of  fertile  land.  Yet  fine  steel  cut- 
lery and  watch-springs,  which  are  only  iron  in  a  highly  finished 
state,  sell  at  a  high  price  by  the  ounce.  Copper,  again,  being 
more  rare,  and  the  mines  of  it  less  productive,  owes  its  value 
chiefly  to  its  scarcity,  or  the  labor  required  for  finding  it  and 
bringing  it  from  a  distance.  The  chief  fear  for  our  copper 
miners  on  the  shores  of  Lake  Superior  is,  lest  they  should  find 
the  metal  too  abundant.  Yet  it  is  so  natural  an  illusion  to 
believe  that  the  high  value  of  these  metals  in  their  manufac- 
tured state  attaches  to  them  also  when  they  are  in  the  ore,  that 
a  mining  mania  is  more  easily  excited  in  the  community  than 
any  other  speculative  bubble.  The  dupes  are  satisfied  by  the 
full  proof  which  is  offered  them,  that  the  ore  is  very  abundant. 
They  had  better  also  count  the  cost  of  the  labor  required  for 
extracting  it  and  bringing  it  to  market.  The  most  productive 
mine  which  a  man  can  work  is  situated  on  his  own  farm. 

What  I  have  called  the  paradox  of  political  economy,  like 
the  hydrostatic  paradox,  is  really  very  simple,  and  admits  of  an 
easy  explanation.  In  proportion  as  the  labor  required  for  ob- 
taining any  useful  article  is  diminished,  and  the  article  itself 
consequently  becomes  very  common,  in  that  proportion  it  ap- 
proximates the  character  of  those  invaluable  gifts  of  Provi- 
dence, the  air,  the  water,  and  the  sunlight,  which,  because  they 
are  common  and  inexhaustible,  have  natural,  but  no  exchange- 
able, value.  They  become  natural  wealth,  they  cease  to  be 
artificial  wealth.  Man  does  not,  in  the  economical  sense,  value 
them,  or  consider  them  as  wealth,  because  he  is  not  able  to 
exchange  them  for  other  things  which  can  only  be  procured  by 
labor ;  or  in  other  words,  he  cannot  purchase  labor  with  them. 
The  possession  of  them  conveys  no  distinction,  does  not  exalt 
one  above  his  fellows,  gives  no  power  over  other  men.  Each 
of  them  satisfies  one  imperative  want,  and  in  this  respect  is 
truly  invaluable ;  but  it  does  not  possess  that  quality  which  is 
characteristic  of  all  articles  that  are  usually  considered  as 
wealth ;  —  any  one  of  these  may  be  bartered  for  more  or  less 


THE  NATURE  OF  EXCHANGEABLE  VALUE.          37 

of  any  article  or  product  whatsoever  that  the  possessor  may 
desire.  We  are  wont  to  consider  money  as  the  universal  me- 
dium of  exchange,  though  it  is  only  a  contrivance  for  facilitat- 
ing it ;  this  is  a  consequence  of  the  popular  delusion  which 
confounds  money  with  wealth.  Any  portion  of  wealth,  any  ar- 
ticle of  value,  is,  like  Fortunatus's  wishing-cap,  a  means  of 
obtaining,  to  the  extent  of  its  value,  whatever  other  article  we 
may  desire  ;  —  the  contrivance  of  money  rendering  the  process 
of  obtaining  it  by  exchange  a  very  simple  one.  This  Protean 
character  of  wealth,  this  capability  of  satisfying  whatever  want 
or  whim  the  heart  of  man  can  conceive,  is,  like  the  ductility  of 
gold,  its  most  peculiar  and  attractive  quality. 

And  here  we  perceive  the  explanation  of  the  fact  which  has 
so  often  been  a  topic  of  complaint,  that  the  pecuniary  wages 
or  earnings  of  scientific  and  literary  men  are,  with  a  few  rare 
exceptions,  very  inconsiderable.  "  Had  the  taste  for  study," 
as  McCulloch  remarks,  "  depended  only  on  the  pecuniary  emol- 
uments which  it  brings  along  with  it,  it  may  well  be  doubted 
whether  it  would  ever  have  found  a  single  votary ;  and  we 
should  have  been  deprived,  not  only  of  very  many  of  our  most 
valuable  and  important  discoveries  in  the  arts,  as  well  as  in 
philosophy  and  legislation,  but  of  much  that  refines  and  exalts 
the  character,  and  supplies  the  best  species  of  amusement." 
The  inadequacy  of  the  pecuniary  compensation  of  these  per- 
sons "  arises  from  a  variety  of  causes  ;  but  principally,  perhaps, 
from  the  indestructibility,  if  we  may  so  term  it,  and  rapid  cir- 
culation, of  their  works  and  inventions.  The  cloth  of  the 
manufacturer  and  the  corn  of  the  agriculturist  are  speedily 
consumed,  and  there  is  therefore  a  continual  demand  for  fresh 
supplies  of  the  same  articles.  Such,  however,  is  not  the  case 
with  new  inventions,  new  theories,  or  new  literary  works. 
They  may  be  universally  made  use  of,  but  they  cannot  be 
consumed.  The  moment  that  the  invention  of  logarithms,  the 
mode  of  spinning  by  rollers,  and  the  discovery  of  the  cow-pox 
had  been  published,  they  were  rendered  imperishable,  and  ev- 
ery one  was  in  a  condition  to  profit  by  them.  It  was  no 
longer  necessary  to  resort  to  their  authors.  The  results  of 
their  researches  had  become  public  property,  had  conferred 
new  powers  on  every  individual,  and  might  be  applied  by  any 
one."  As  they  can  no  longer  be  appropriated,  the  difficulty  of 
4 


38  THE    PRODUCTION   OF    WEALTH  : 

attainment,  which  is  a  necessary  element  of  artificial  wealth,  is 
entirely  removed;  they  therefore  cease  to  possess  exchange- 
able value,  and  become  a  part  of  what  we  have  called  the 
natural  wealth  of  mankind. 

Observe,  moreover,  that  it  is  in  the  highest  departments  of 
literature  and  science  that  labor  is  most  imperfectly  remuner- 
ated ;  in  those  of  a  lower  rank,  in  adapting  to  popular  com- 
prehension and  purposes  of  practical  utility  the  ideas  and 
discoveries  of  others,  tact  and  industry  may  often  reap  a  con- 
siderable pecuniary  reward.  Hence,  invention  is  usually  more 
profitable  than  discovery ;  a  new  machine  may  create  a  for- 
tune for  its  inventor,  whilst  the  discoverer  of  those  abstract 
principles  of  science,  or  general  laws  of  nature,  which  are  ap- 
plied in  the  mechanical  improvement,  or  are  presupposed  in 
the  construction  of  it,  can  obtain  no  compensation  but  the 
fame  of  his  labors  and  the  gratitude  of  posterity.  No  one 
thinks  of  rewarding  the  heirs  of  Franklin  and  CErsted  for  those 
discoveries  in  electricity  and  electro-magnetism  to  which  we 
are  primarily  indebted  for  the  lightning-rod,  the  electrotype, 
and  the  magnetic  telegraph.  Ideas  cannot  be  patented,  or  ex- 
clusively appropriated;  but  machines  may  be.  So  also  in 
authorship,  as  McCulloch  observes,  "though  a  work  should 
have  the  greatest  influence  over  the  legislation  of  the  country 
or  the  state  of  the  arts,  it  may  redound  but  little  to  the  advan- 
tage of  the  author.  It  is  not  so  much  on  the  depth,  original- 
ity, and  importance  of  its  views,  as  on  the  circumstance  of  its 
being  agreeable  to  the  public  taste,  that  the  success,  and  conse- 
quently the  productiveness  of  a  book  to  its  author,  must  de- 
pend. Many  a  middling  novel  has  produced  more  money 
than  the  '  Principia '  or  the  '  Wealth  of  Nations ' ;  and  in  this 
respect,  the  '  Decline  and  Fall  of  the  Roman  Empire '  has  been 
far  inferior  to  the  '  Arabian  Nights.' " 

The  conversion  of  artificial  into  natural  wealth,  an  apparent 
loss  in  exchangeable  value  being  a  real  gain  to  the  whole  com- 
munity, may  be  further  illustrated  by  an  example  borrowed 
from  Mr.  Senior.  "  If  the  climate  of  England  could  be  sud- 
denly changed  to  that  of  Bogota,  and  the  warmth  which  we 
extract  imperfectly  and  expensively  from  fuel  were  supplied  by 
the  sun,  fuel  would  cease  to  be  useful,  except  as  one  of  the 
productive  instruments  employed  by  art;  [that  is,  in  metal- 


THE  NATURE  OF  EXCHANGEABLE  VALUE.          39 

lurgy,  driving  steam-engines,  &c.]  We  should  want  no  more 
grates  or  chimney-pieces  in  our  sitting-rooms.  What  had  pre- 
viously been  a  considerable  amount  of  property  in  the  fixtures 
of  houses,  in  stock  in  trade,  and  materials,  would  become  val- 
ueless. Coals  would  sink  in  price ;  the  most  expensive  mines 
would  be  abandoned ;  those  which  were  retained  would  afford 
smaller  rents.  The  proprietors  and  tradesmen  specially  affect- 
ed by  the  change  would  lose,  not  only  in  wealth,  but  in  the 
means  of  enjoyment.  The  owner  of  a  mine  whose  rent  fell 
from  £  20,000  a  year  to  £  10,000  would  not  be  compensated 
by  being  saved  the  expense  of  fuel  in  every  room  except  his 
kitchen.  On  the  other  hand,  persons  without  fire-places  or 
coal-cellars  of  their  own  would  lose  nothing,  and  the  rest  of  the 
world  would  lose  only  in  the  value  of  their  grates,  chimney- 
pieces,  and  stocks  of  coal ;  and  all  would  gain  in  enjoyment 
by  being  able  to  devote  to  other  purposes  the  money  which 
they  previously  paid  for  artificial  warmth.  Still,  for  a  time, 
there  would  be  less  [artificial]  wealth;  [and  there  would  be 
permanently  a  great  gain  in  natural  wealth.]  The  capital 
and  the  labor  previously  devoted  to  warming  our  apartments, 
would  be  diverted  to  the  production  of  new  commodities. 
The  cheapness  of  coal  would  increase  the  supply  of  manufac- 
tured articles,  and  there  would  then  be  as  much  wealth  as 
there  was  before  the  change;  probably  more,  and  certainly 
much  more  enjoyment." 

As  to  the  nature  of  the  labor  which  ends  in  the  production 
of  wealth,  it  is  justly  remarked  by  McCulloch,  that  "  all  the 
operations  of  nature  and  art  are  reducible  to,  and  really  con- 
sist of,  transmutations,  that  is,  of  changes  of  form  and  of  place. 
By  production,  in  this  science,  is  not  meant  the  production  of 
matter,  that  being  the  exclusive  attribute  of  Omnipotence,  but 
the  production  of  utility,  and  consequently  of  value,  by  appro- 
priating and  modifying  matter  already  in  existence,  so  as  to 
fit  it  to  satisfy  our  wants,  and  contribute  to  our  enjoyments. 
The  labor  which  is  thus  employed  is  the  only  source  of  wealth. 
Nature  spontaneously  furnishes  the  matter  of  which  all  com- 
modities are  made ;  but  until  labor  has  been  applied  to  appro- 
priate that  matter,  or  to  adapt  it  to  our  use,  it  is  wholly  desti- 
tute of  value,  and  is  not,  nor  ever  has  been,  considered  as 
forming  wealth.  Place  us  on  the  banks  of  a  river,  or  in  an 


40  THE   PRODUCTION   OF   WEALTH. 

orchard,  and  we  shall  infallibly  perish  of  thirst  or  hunger,  if  we 
do  not,  by  an  effort  of  industry,  raise  the  water  to  our  lips,  or 
pluck  the  fruit  from  its  parent  tree.  It  is  seldom,  however, 
that  the  mere  appropriation  of  matter  is  sufficient.  In  the  vast 
majority  of  cases,  labor  is  required  not  only  to  appropriate  it, 
but  also  to  convey  it  from  place  to  place,  and  to  give  it  that 
peculiar  shape  without  which  it  may  be  totally  useless,  and  in- 
capable of  ministering  either  to  our  necessities  or  our  comforts. 
The  coal  used  as  fuel  is  buried  deep  in  the  bowels  of  the  earth, 
and  is  absolutely  worthless  until  the  miner  has  extracted  it 
from  the  mine,  and  brought  it  into  a  situation  where  it  may  be 
made  use  of.  The  stones  and  mortar  used  in  building  houses, 
and  the  rugged  and  shapeless  materials  that  have  been  fash- 
ioned into  the  various  articles  of  convenience  and  ornament 
with  which  they  are  furnished,  were,  in  their  original  state, 
destitute  alike  of  value  and  utility.  And  of  the  innumerable 
variety  of  animal,  vegetable,  and  mineral  products,  which  form 
the  materials  of  food  and  clothes,  none  was  originally  service- 
able, while  many  were  extremely  noxious  to  man.  It  is  his 
labor  which  has  given  them  utility,  that  has  subdued  their  bad 
qualities,  and  made  them  satisfy  his  wants  and  minister  to  his 
comforts  and  enjoyments." 

We  distinguish,  then,  three  kinds  of  industry :  — 

1.  The  labor  of  collecting  and  appropriating  natural  products. 
This  includes  the  work  not  only  of  the  agriculturist,  or  tiller  of 
the  ground,  but  of  the  miner,  the  huntsman,  the  fisherman, 
and  all  others  who  bring  together  for  the  use  of  man  the  vari- 
ous products  of  sea  and  land  which  satisfy  his  wants. 

2.  The  tasks  of  the  manufacturer,  the  mechanic,  and  the  ar- 
tisan, who  shape,  combine,  and  fabricate  raw  materials  into 
forms  fit  for  use. 

3.  The  business  of  the  merchant,  who  brings  together  the 
products  of  various  climes,  distributes  them  among  the  people 
in  proportion  to  their  means  and  wants,  and  equalizes  the  sup- 
plies and  prices  of  commodities  by  storing  them  up  for  future 
use,  or  carrying  them  where  they  are  most  needed. 

Again,  the  commodities  which  constitute  wealth  may  be  di- 
vided into  two  classes :  —  1.  The  articles  which  are  designed 
for  immediate  consumption,  and  which  directly  satisfy  the 
wants  of  man,  such  as  food  and  clothing,  that  are  fit  to  be 


THE    MEASURE    OF    VALUE.  41 

eaten  and  worn,  the  houses  that  shelter  us,  and  the  ornaments 
and  luxuries  that  gratify  our  tastes.  2.  The  tools,  implements, 
and  raw  materials,  by  means  of  which,  or  out  of  which,  the 
former  articles  are  made,  but  which,  in  their  present  shape,  are 
not  fitted  for  our  immediate  gratification  or  support.  These 
last  possess  only  a  kind  of  secondary  or  derivative  value,  as 
they  are  prized,  not  for  their  own  sake,  but  for  what  can  be 
made  out  of  them,  or  obtained  by  their  aid. 


CHAPTER    IV. 

THE    MEASURE    OF    VALUE,   AND    THE    DISTRIBUTION     OF     WEALTH 
AMONG    THE    COOPERATING    PRODUCERS    OF    IT. 

THUS  far  it  has  been  shown,  that  labor  is  not  only  necessary 
in  fact  for  the  creation  of  value,  but  enters  into  the  very  idea 
of  it,  so  that,  when  the  necessity  for  labor  departs,  the  reality 
and  even  the  conception  of  value  vanish  along  with  it.  I  now 
say  that  the  labor  required  is  a  measure  of  the  value  produced. 
But  here  the  word  labor  must  be  taken  in  its  most  comprehen- 
sive signification.  I  mean  by  it  any  human  exertion  whatever ', 
corporeal  or  Intellectual,  which  directly  or  indirectly  overcomes 
or  diminishes  that  difficulty  of  attainment  which  we  have  seen  to 
be  an  essential  element  of  wealth.  The  only  measure  of  such 
labor  is  its  comparative  efficiency.  Thus,  the  labor  of  one 
practised  and  skilful  artisan  is  equal  to  that  of  at  least  three 
raw  hands,  or  ordinary  laborers,  as  they  are  termed ;  in  some 
cases,  it  may  equal  that  of  many  more.  The  labor,  chiefly  in- 
tellectual, of  general  superintendence  and  skilful  direction  of 
the  operatives  employed  in  a  manufactory,  may  be  measured 
by  the  ordinary  labor  which  it  saves,  —  that  is,  by  the  number 
of  additional  workmen,  or  the  additional  time,  that  would  be 
needed  if  such  superintendence  were  wanting ;  or  it  may  be 
measured  by  the  scarcity  of  the  peculiar  skill  and  tact  which 
are  required  for  such  superintendence,  —  that  is,  by  the  diffi- 
culty of  finding  a  competent  superintendent. 


42  THE    MEASURE    OF    VALUE  : 

So  the  value  of  a  machine  may  be  either  the  labor  which  it 
saves,  or  the  labor  which  it  costs.  If,  for  instance,  a  manufac- 
turer introduces  a  new  machine,  by  the  aid  of  which  two  men 
can  do  the  work  that  formerly  required  ten  men,  (two  more 
persons  being  required  to  build  the  machine  and  keep  it  in  re- 
pair,) he  will  save  the  labor  of  six  persons ;  and  the  value  of 
this  machine  to  him  will  be  represented  by  six  laborers  work- 
ing gratuitously.  This  will  be  the  case,  however,  only  so  long 
as  he  can  keep  the  machine  a  secret  from  other  manufacturers, 
or  enjoy  the  exclusive  use  of  it.  When  its  use  becomes  gen- 
eral, the  general  saving  of  labor,  reducing  the  cost  of  the  man- 
ufactured article,  will  also  reduce  its  price;  for  that  which 
costs  the  labor  of  but  four  persons  will  exchange  for  the  labor 
of  not  more  than  four.  No  one  will  give  anything  more  for 
any  commodity  than  it  would  cost  him  to  produce  it  for  him- 
self ;  and  in  the  case  supposed,  any  four  workmen,  by  employ- 
ing such  a  machine,  might  manufacture  the  article  for  them- 
selves. Now,  then,  the  value  of  the  machine  will  be  only  the 
labor  which  it  costs  ;  the  articles  produced  by  it  will  represent 
the  labor  of  but  four  persons,  —  two  to  work  it,  and  two  more 
to  build  and  keep  it  in  repair. 

The  general  law,  therefore,  that  the  labor  required  is  a 
measure  of  the  value  produced,  is  subject  to  two  limitations :  — 
the  first  is,  that  allowance  must  be  made  for  the  various  de- 
grees of  efficiency  of  the  several  laborers  employed ;  the  sec- 
ond, that  the  maker  has  not  the  advantage  of  a  patented 
machine  or  a  secret  process,  which  might  enable  him  to  pro- 
duce the  commodity  by  a  smaller  expenditure  of  labor  than  is 
usual.  According  to  Adam  Smith,  a  workman  accustomed 
to  the  use  of  the  hammer,  but  not  accustomed  to  making  nails, 
cannot  manufacture  usually  more  than  300  nails  in  a  day ;  while 
such  is  the  dexterity  acquired  by  practice,  that  about  2,300  can 
be  made  in  a  day  by  a  workman  who  has  never  exercised  any 
other  trade  than  that  of  making  nails.  The  value  of  one  day's 
labor  of  such  a  workman,  in  this  manufacture,  will  be  evident- 
ly equal  to  that  of  seven  or  eight  days'  labor  by  an  ordinary 
smith.  It  is  equally  obvious,  that  the  exclusive  use  of  a  ma- 
chine, or  a  secret  process,  might  render  the  articles  produced  by 
three  ordinary  workmen  the  full  equivalent  in  value  of  those 
manufactured  by  thirty  or  forty  hands  working  without  any 
such  advantage. 


THE    DISTRIBUTION    OF    WEALTH.  43 

When  the  use  of  machinery  has  diminished  the  exchange- 
able value  of  certain  commodities,  the  question  may  be  asked, 
What  has  become  of  the  difference  between  their  former  and 
their  present  cost  ?  The  difficulty  of  obtaining  these  commod- 
ities is  diminished,  the  labor  required  to  overcome  that  diffi- 
culty is  consequently  lessened,  and  therefore,  according  to  the 
principles  already  laid  down,  less  exchangeable  value  is  cre- 
ated. Suppose  cloth  to  be  the  commodity  manufactured,  and 
that  the  price  was  formerly  ten  cents  a  yard,  while  it  can  now 
be  had  for  four  cents.  All  of  that  cloth  which  is  already  in  the 
market  will  now  be  held  at  only  two  fifths  of  its  former  value. 
What  has  become  of  the  other  three  fifths  ?  Is  this  amount 
of  exchangeable  value  destroyed,  and  is  the  introduction  of  la- 
bor-saving machinery,  therefore,  an  evil  to  the  community  ? 

The  answer  is,  in  this  case  as  in  the  former  one,  that  the  ex- 
changeable value  of  the  commodity  is  diminished ;  but  what 
is  taken  away  from  that  value  is  added  to  what  I  have  called 
the  natural  wealth  of  the  people,  in  distinction  from  their  arti- 
ficial wealth,  —  to  the  stock  of  those  things,  like  the  air  and 
the  sunlight,  which  are  of  preeminent  utility,  but,  being  uni- 
versal and  inexhaustible,  cannot  be  exchanged  for  anything. 
That  this  is  true  may  be  seen  at  once  by  putting  the  extreme 
case.  Imagine  that  the  machine,  instead  of  saving  only  three 
fifths  of  the  labor,  should  save  the  whole  of  it  Imagine  that 
some  contrivance  should  be  hit  upon  for  producing  cloth  in  un- 
bounded profusion,  no  labor  of  man  being  required  in  any  part 
of  the  process.  It  is  obvious  that  we  should  then  obtain  cloth 
on  the  same  easy  terms  on  which  we  now  obtain  air  and  light. 
It  would  be  an  addition  to  the  natural  wealth  of  mankind ; 
but  as  any  person  could  have  as  much  of  it  as  he  wished  with- 
out difficulty,  he  would  not  give  in  exchange  for  it  anything 
which  had  cost  him  labor ;  it  would  have  no  exchangeable  value. 
And  as  a  machine  which  would  save  the  whole  of  the  labor 
would  transform  the  whole  exchangeable  value  into  natural 
wealth,  so,  if  it  saved  but  three  fifths  of  the  labor,  it  would  add 
that  three  fifths  to  our  natural  wealth. 

Observe,  however,  as  before,  that  this  result  would  follow 
only  if  the  use  of  the  machine  became  common.  If  its  inventor 
or  first  introducer  could  keep  it  to  himself  for  a  time,  he  could 
exchange  the  cloth  which  cost  him  the  labor  of  only  four  men 


44  THE    MEASURE    OF    VALUE: 

for  articles  which  cost  others,  and  would  cost  him,  the  labor  of 
ten  men ;  because  it  would  take  ten  persons,  without  the  aid 
of  the  machine,  to  produce  the  cloth.  The  value  produced  is 
measured  by  the  average  of  the  labor  required  for  making  or 
obtaining  the  commodity,  and  not  by  the  greater  or  smaller 
amount  of  labor  which  circumstances  may  render  necessary  in 
a  particular  case.  If  any  person  has  a  monopoly  granted  by 
the  government,  or  a  secret  process,  or  a  machine  which  others 
cannot  imitate,  he  can  turn  to  his  own  exclusive  advantage  the 
value  which  would  otherwise  be  added  to  the  natural  wealth 
of  the  community. 

Accident,  or  good  fortune,  as  it  is  called,  may  have  the  same 
effect  as  a  monopoly  or  a  secret  process.  Take  the  pearl-fish- 
ery, for  instance.  The  value  of  the  pearls  obtained  will  be  de- 
termined by  dividing  the  whole  amount  procured  in  one  day 
by  the  whole  number  of  divers  employed  during  that  day  ;  and 
by  dividing  the  quantity  obtained  in  the  whole  season  by  the 
number  of  days  in  that  season  ;  —  thus  ascertaining  the  aver- 
age cost  of  the  pearls  in  labor.  But  the  business  is  a  mere  lot- 
tery ;  one  diver  may  bring  up,  from  his  first  plunge,  a  pearl 
worth  a  hundred  dollars ;  another  may  dive  for  a  week,  and 
obtain  little  or  nothing.  If  a  capitalist  should  undertake  the 
business,  and  pay  fixed  wages  to  all  the  divers  on  condition  of 
receiving  all  the  pearls  which  they  found,  his  profits,  or  the 
value  of  the  pearls,  will  evidently  be  determined  by  their  aver- 
age  cost  in  labor,  and  not  by  individual  and  extraordinary 
cases.  When  Mr.  Senior,  who  denies  that  labor  is  essential 
to  the  creation  of  wealth,  asks  triumphantly,  "  If,  while  care- 
lessly lounging  along  the  sea-shore,  I  were  to  pick  up  a  pearl, 
would  it  have  no  value  ?  "  and,  "  Supposing  that  aerolites  con- 
sisted of  gold,  would  they  have  no  value  ?  "  he  might  be  an- 
swered, that  accidents  and  miraculous  events  are  supposed  to 
be  eliminated  when  we  are  reasoning  upon  the  general  princi- 
ples which  govern  ordinary  events;  and  that,  if  pearls  were 
common  enough  to  be  often  found  by  loungers  on  the  sea- 
shore, or  if  showers  of  golden  aerolites  were  so  frequent  as  no 
longer  to  appear  miraculous,  certainly  both  the  pearls  and  the 
gold  would  have  little  or  no  value. 

I  have  dwelt  at  length  upon  the  two  fundamental  maxims 
of  Political  Economy,  that  labor  is  the  source  of  wealth,  and 


THE    DISTRIBUTION    OF    WEALTH.  45 

that  the  wealth  produced  is  in  exact  proportion  to  the  labor 
expended,  and  is  therefore  measured  by  it,  because,  obvious 
and  unquestionable  as  these  truths  may  appear,  they  are  yet 
such  as  the  world  is  slow  to  recognize  and  reluctant  to  act 
upon.  Here  in  America  especially,  too  many  people  spend 
their  time  and  waste  their  substance  upon  vain  projects  for 
getting  rich  without  labor.  They  hope  that  some  one  of  those 
accidents,  or  peculiar  circumstances,  which  we  have  noticed 
as  occasionally  disturbing  the  regular  proportion  of  value  to 
labor,  may  fall  to  their  lot ;  that  is,  —  for  it  amounts  to  noth- 
ing else,  —  that  they  may  become  rich  at  the  expense  of  their 
fellows ;  that  they  may,  by  some  invention,  or  perhaps  some 
roguery,  be  able  to  exchange  four  days'  labor  for  ten  days'  la- 
bor. They  will  take  shares  in  a  copper-mine,  or  go  to  Califor- 
nia to  dig  gold,  or  commit  any  other  extravagance,  though  it 
should  be  demonstrated  to  them  that  the  average  return,  the 
whole  profit  divided  by  the  whole  number  of  adventurers, 
would  not  keep  one  from  starvation. 

Take  another  instance.  Three  persons  out  of  four,  when 
the  temptation  is  brought  home  to  them,  will  buy  a  ticket  in 
a  lottery ;  though  this  is  the  only  adventure  ever  offered  to  the 
public,  in  which,  avowedly,  the  net  result  is  not  a  gain,  but  a 
loss.  For  $  120,000  received  as  the  price  of  tickets,  perhaps 
$  100,000  are  returned  in  prizes ;  that  is,  the  adventurers  ex- 
pect that  only  five  sixths  of  what  they  have  invested  will  be 
returned  to  them,  instead  of  getting  back  the  whole  and  a 
profit  besides.  And  the  $  100,000  returned  are  divided  into  so 
few  prizes,  that  nineteen  out  of  twenty  of  the  ticket-holders 
must  suffer  a  total  loss  of  their  investment.  But  one  fortunate 
person  —  one  out  of  60,000  —  must  receive  $  20,000  for  two 
invested.  And  yet  lotteries  are  so  popular,  that  they  must  be 
forbidden  by  law,  in  order  to  prevent  clerks  from  robbing  their 
employers  for  the  sake  of  investing  money  in  them ;  and  the 
most  effectual  way  of  encouraging  the  fine  arts  in  this  country 
is  found  to  be  the  establishment  of  an  Art- Union  lottery  for 
their  benefit.  Sydney  Smith,  a  veteran  opponent  of  abuses  in 
church  and  state,  and  one  whose  wit  was  not  more  remark- 
able than  his  sagacity  and  benevolence,  strenuously  opposed  a 
scheme  for  reducing  the  monstrous  inequalities  in  the  compen- 
sation of  the  English  clergy,  on  the  ground  that  these  inequal- 


46 


THE    MEASURE    OF    VALUE : 


ities  allured  more  talent  into  the  Church  than  would  be 
brought  thither  by  a  much  larger  income  equally  distributed. 
Men,  he  argued,  think  only  of  the  prizes,  and  take  no  account 
of  the  blanks.  The  chance  of  becoming  an  Archbishop  of 
Canterbury,  with  X  20,000  a  year,  is  enough  to  allure  over 
10,000  clergymen  into  an  Establishment  one  half  of  the  livings 
in  which  produce  less  than  £>  100  of  annual  income.* 

Coming  back  to  the  subject  of  the  cooperation  and  the  com- 
pensation of  labor,  it  may  be  remarked,  that  the  seemingly 
complex  and  difficult  process  of  dividing  the  ultimate  value  of 
the  finished  article  equitably  among  all  those  who  have  had  a 
share  in  its  production,  is  really  accomplished  with  ease, 
through  the  number  of  exchanges  it  undergoes  at  the  different 
stages  of  its  manufacture.  At  each  stage,  labor  effects  a 
change  in  its  form,  bringing  it  nearer  to  the  state  in  which  it 
is  fitted  for  consumption ;  at  each  exchange,  therefore,  it  has 
more  labor  vested  in  it,  and  consequently  buys  more  labor 
vested  in  other  products,  the  difference  being  the  compensation 
of  the  last  person  who  has  made  an  alteration  of  its  form. 
What  regulates  this  difference,  and  causes  each  producer  to 
be  paid  in  exact  proportion  to  the  labor  which  he  has  be- 
stowed, is  the  competition  of  other  producers.  Wheat,  for 
instance,  is  first  sold  or  exchanged  as  wheat,  the  price  paid  for 
it  being  the  compensation  of  the  farmer  by  whose  care  and  la- 


*  First  Letter  to  Archdeacon  Singleton. 

This  argument,  however,  was  not  original  with  Sydney  Smith.  It  was  urged, 
more  than  a  hundred  years  before  his  day,  by  the  famous  Dr.  Bentley,  the  Aristar- 
chns  of  English  literature,  in  his  "  Remarks  "  upon  Collins's  "  Discourse  on  Free- 
Thinking."  I  borrow  the  passage,  which  is  written  in  the  character  of  a  foreigner, 
Phileleutherus  Lipsiensis. 

"  I  congratulated,  indeed,  the  felicity  of  your  Establishment,  which  attracted  the 
choice  youth  of  your  nation  for  such  very  low  pay ;  but  my  wonder  was  at  the  par- 
ents, who  generally  have  interest,  maintenance,  and  wealth  the  first  thing  in  their 
view :  till  at  last  one  of  your  state  lotteries  ceased  my  astonishment  For  as  in  that, 
a  few  glittering  prizes,  1,000,  5,000,  10,000  pounds,  among  an  infinity  of  blanks, 
drew  troops  of  adventurers,  who,  if  the  whole  fund  had  been  equally  ticketed,  would 
never  have  come  in ;  so  a  few  shining  dignities  in  your  Church,  prebends,  dean- 
eries, bishoprics,  are  the  pious  fraud  that  induces  and  decoys  the  parents  to  risk  their 
child's  fortune  in  it.  Every  one  hopes  his  own  will  get  some  great  prize  in  the 
Church,  and  never  reflects  on  the  thousands  of  blanks  in  poor  country  livings.  And 
if  a  foreigner  may  tell  you  his  mind,  from  what  he  sees  at  home,  't  is  this  part  of 
your  Establishment  that  makes  your  clergy  excel  ours.  Do  but  once  level  your  pre- 
ferments, and  you  '11  soon  be  as  level  in  your  learning." 


THE    DISTRIBUTION    OF    WEALTH.  47 

bor  it  was  raised.  As  labor  is  the  measure  of  value,  a  quantity 
of  wheat  which  represents  five  days'  labor  must  be  exchange- 
able for  a  quantity  of  cloth  which  also  represents  five  days' 
labor,  —  no  more  and  no  less ;  —  no  more,  because  this  would 
induce  the  cloth-maker  to  turn  farmer;  no  less,  because  the 
farmer  would  then  turn  cloth-maker.  No  man  will  give  six 
days'  labor  in  any  one  product  for  another  product  which  he 
might  himself  raise  in  five  days.  And  though  it  may  be  said, 
that  he  who  has  long  practised  a  particular  trade  or  art  will 
be  reluctant  to  exchange  it  for  another,  as  he  would  thereby 
sacrifice  the  skill  which  he  has  obtained  by  experience,  and  be 
obliged  to  serve  another  apprenticeship  to  a  new  handicraft  or 
profession,  it  must  be  remembered,  that  all  employments  can 
be  kept  full  only  by  a  succession  of  young  and  fresh  hands 
constantly  entering  them,  and  these  persons  will  choose,  of 
course,  the  occupation  that  is  most  profitable.  Thus  the  num- 
ber of  those  who  pursue  the  art  which  is  underpaid  will  rap- 
idly diminish,  while  the  number  in  the  more  profitable  branches 
of  industry  will  increase,  until  an  equality  of  gains  among  all 
these  branches  is  reestablished.  Exchanges  then  regulate 
themselves,  and  must  be  made  on  equal  terms.  The  farmer 
having  received  a  fair  compensation  for  his  work,  the  miller 
next  obtains  the  wheat,  and,  having  converted  it  into  flour,  sells 
it  to  the  flour-merchant  at  an  advanced  price,  because  more 
labor  is  now  vested  in  it.  In  like  manner,  it  passes  succes- 
sively into  the  hands  of  the  retail  dealer,  the  baker,  and  the 
consumer,  at  each  stage  acquiring  an  additional  value  in  ex- 
change just  sufficient  to  compensate,  on  an  average,  the  labor 
expended  upon  it  at  that  stage. 

Competition,  then,  when  it  is  free,  or  competition  modified 
by  custom,  determines  the  distribution  of  the  value  of  a  prod- 
uct among  those  who  have  concurred  in  its  production.  How 
far  it  may  be  modified  by  custom  depends  on  circumstances. 
Mr.  Mill  justly  observes,  that  competition  has  become  "the 
governing  principle  of  contracts  only  at  a  comparatively  modern 
period  "  ;  and  that  "  the  relations,  more  especially,  between  the 
land-owner  and  the  cultivator,  and  the  payments  made  by  the 
latter  to  the  former,  are,  in  all  stages  of  society  but  the  most 
modern,  determined  by  the  usage  of  the  country."  It  was  thus 
that,  in  many  European  countries,  the  serfs  were  gradually  el- 


48 


THE    MEASURE    OF    VALUE : 


evated,  first  into  the  condition  of  free  tenants,  and  finally  of 
absolute  owners  of  the  soil.  Their  original  obligation,  to  fur- 
nish to  their  lords  an  indefinite  amount  of  provisions  and  la- 
bor, -was  first  transformed  into  a  definite  payment  of  a  fixed 
amount  of  either;  these  payments  in  kind  were  next  com- 
muted for  payments  in  money,  which  were  established  by 
custom  at  so  early  a  period,  and  therefore  at  so  small  an 
amount,  that  they  became  mere  quitrents ;  and  the  land  was 
finally  ransomed  even  from  these  quitrents  by  commutation 
on  reasonable  terms,  so  that  the  former  serfs  became  absolute 
proprietors  of  the  ground. 

While  the  peasantry  in  most  countries  of  Continental  Eu- 
rope were  thus  not  only  emancipated,  but  secured  from  want 
by  the  ownership  of  the  ground  which  they  formerly  tilled  as 
slaves,  the  agricultural  laborers  of  England  were  far  less  fortu- 
nate. All  landed  property  in  England  was  equally  of  feudal 
origin ;  that  is,  the  land  was  admitted  to  belong  originally  to 
the  state,  and  the  immediate  vassals  of  the  crown,  or  the  ten- 
ants in  capite,  held  it  only  on  condition  of  rendering  certain 
services  and  payments,  that  might  be  considered  as  rent.  Just 
so,  the  practice  of  sub-infeudation  being  introduced,  these  vas- 
sals of  the  crown  parcelled  out  their  respective  lands  to  a  set 
of  inferior  tenants,  many  of  whom  were  originally  serfs,  on 
condition,  first,  of  certain  services  and  supplies  being  rendered, 
next,  of  a  definite  payment  in  kind,  and  then,  of  an  ordinary 
money  rent.  Thus  the  inferior  tenantry  were  the  vassals  of 
the  great  landholder,  in  the  same  manner,  and  upon  the  same 
terms,  upon  which  the  latter  was  a  vassal  of  the  crown,  both 
being  still  called  tenants  in  the  language  of  the  law.  As  the 
prerogatives  of  the  crown  were  gradually  diminished,  and  the 
liberties  of  the  people  increased,  the  nobility  and  landed  gen- 
try, the  original  tenants  in  chief,  gradually  lessened  the  feudal 
burdens  upon  their  land,  which  consisted  in  services  and  pay- 
ments, and  finally,  in  Charles  the  Second's  time,  shook  off  the 
remnant  of  them  altogether,  artfully  exchanging  what  had  be- 
come a  mere  land-tax  for  an  excise  on  beer  and  ale.  Thus 
they  became  absolute  owners  of  their  holdings  or  tenements. 
But  they  had  no  disposition  to  make  the  same  concessions  to 
their  own  tenantry,  which  they  had  themselves  exacted  from 
the  crown.  The  English  peasantry  have  not  been  able  to  re- 


THE    DISTRIBUTION    OF    WEALTH.  49 

tain  their  lands,  even  on  condition  of  paying  the  full  original 
rent  for  them.  They  have  subsided  into  the  class  of  tenants  at 
will,  ground  down  by  rack-rents  for  a  century  or  two,  and  at 
last  expelled  from  the  land  altogether,  to  find  their  subsistence 
where  they  may.  The  feudal  dues  from  the  lands  of  the  ten- 
ants in  chief  were  slowly  transformed  into  a  species  of  land-tax, 
and  at  last  abrogated  entirely ;  while  the  same  dues  from  the 
lands  of  the  inferior  tenantry  were  transformed  into  annual 
rents,  augmented  in  amount  by  every  improvement  of  the  land 
in  value,  and  when  the  peasants,  from  misfortune  or  bad  man- 
agement, could  no  longer  pay  them,  they  were  ejected  from 
the  estate  altogether,  and  became  mere  laborers  for  wages,  or 
paupers. 

The  Scotch  Highlanders  have  suffered  still  more  grievous 
injustice.  The  Gaelic  tenant  was  never  conquered;  he  did 
not  obtain  his  land  from  the  liberality  of  his  lord,  but  was 
originally  a  fellow-proprietor  with  him,  or  rather  with  his  clan. 
The  chief  whom  he  followed  to  battle  regarded  him  at  first  as 
his  friend  and  relation,  then  as  his  soldier,  afterward  as  his 
vassal,  still  later  as  his  farmer,  and  finally  as  his  tenant  and 
hired  laborer,  whom  he  might  employ  for  a  time,  but  might 
banish  from  the  estate  when  he  had  no  further  need  of  his  ser- 
vices. Even  the  name  of  the  clansmen,  Klaan,  in  Gaelic  sig- 
nifies children.  All  their  usages,  all  their  reciprocal  relations, 
all  their  affections,  were  founded  on  the  tradition  that  they 
were  the  offspring  of  one  family ;  all  their  rights  were  those  of 
the  children  of  a  common  parent  to  the  common  patrimony. 
The  chieftain  exercised,  perhaps  he  usurped,  the  right  of  divid- 
ing the  land  among  them,  and  even  of  frequently  altering  this 
distribution.  It  was  a  matter  of  public  policy  with  the  Celts, 
as  well  as  with  the  Germans,  that  families  should  frequently, 
even  annually,  change  their  position  in  the  district  which  be- 
longed to  them,  lest  they  should  become  too  much  attached 
to  the  fields  which  they  cultivated,  and  thus  be  unfitted  for 
war,  and  averse  to  undertaking  military  expeditions.  But 
though  their  locations  were  altered,  the  vacated  places  were 
occupied  by  other  members  of  the  same  clan,  and  the  chief- 
tain could  not  alienate  any  portion  of  the  common  property. 
The  tenure  of  the  lands  remained  the  same ;  the  assessment 
for  the  public  defence,  the  annual  contribution  for  the  chief- 
5 


50  THE    MEASURE    OF    VALUE  : 

tain  who  ruled  them  and  led  them  to  battle,  were  never  aug- 
mented. 

The  first  step  in  the  usurpation  was  to  grant  the  tacks,  or 
portions  of  land,  to  the  vassals  for  a  fixed  period  of  time. 
This  appeared  to  be  a  concession,  as  formerly  the  occupants 
could  be  changed  at  will ;  but  in  truth  it  was  a  usurpation,  for 
now,  instead  of  filling  the  vacated  places  with  other  clansmen 
on  precisely  the  same  conditions,  the  lands  came  to  be  consid- 
ered as  farms,  and  at  each  renewal  of  the  lease  new  terms 
might  be  imposed,  and  a  higher  rent  demanded.  Thus  the 
Highland  lords,  who  were  rightfully  entitled  only  to  an  invari- 
able rent  levied  on  the  property  of  the  clan,  obtained  at  last 
an  absolute  ownership  of  the  domain  which  paid  this  rent. 
Still  they  were  far  from  believing  that  the  time  would  come 
when  they  would  take  advantage  of  the  renewal  of  the  leases, 
not  merely  to  raise  the  rent,  but  to  expel  their  vassals  from  the 
estate.  But  the  period  arrived  for  this  change  also  to  be  ef- 
fected. "  Since  the  beginning  of  the  present  century,"  says 
Sismondi,  "the  nation  of  the  Highlanders  or  Gauls,  the  de- 
scendants of  the  ancient  Celts,  now  reduced  to  340,000  souls, 
has  been  almost  entirely  expelled  from  its  home  by  the  very 
persons  whom  it  regarded  as  its  chieftains,  and  to  whom  it 
had  shown  for  so  many  centuries  an  enthusiastic  devotion. 
The  territory  which  they  had  cultivated  from  generation  to 
generation,  under  a  fixed  rent,  has  been  taken  from  them  and 
devoted  to  the  pasturage  of  flocks  guarded  by  herdsmen  who 
are  strangers;  their  houses  and  villages  have  been  razed  to 
the  ground  or  destroyed  by  fire,  while  the  unhappy  people 
have  been  forced,  either  to  build  cabins  on  the  sea-shore,  and 
endeavor  to  maintain  their  miserable  existence  by  fishing,  or 
to  cross  the  ocean  to  seek  their  fortune  in  the  back-settlements 
of  America."  "  It  is  only  within  the  last  five-and-thirty  years," 
says  Mr.  Thornton,  writing  in  1845,  "that  the  straths  and 
glens  of  Sutherland  have  been  cleared  of  their  inhabitants,  and 
that  the  whole  country  has  been  converted  into  one  immense 
sheepwalk,  over  which  the  traveller  may  proceed  for  forty  miles 
together  without  seeing  a  tree  or  a  stone  wall,  or  anything 
but  a  heath  dotted  with  sheep  and  lambs."  And  the  example 
of  Sutherland  has  been  imitated  in  the  neighboring  counties. 

The  effect  of  custom  in  modifying  competition  has  also  been 


THE    DISTRIBUTION    OF    WEALTH.  51 

seen  in  Ireland,  where  the  custom  of  what  is  called  tenant- 
right  has  sprung  up,  prevailing  almost  universally  in  the  north, 
and  gradually  extending  itself  into  the  centre  and  west  of  that 
unhappy  country.  "  My  view  of  tenant-right,"  says  Mr.  Sen- 
ior, "is,  that  it  is  the  difference  between  the  rent  actually 
charged  by  the  landlord  according  to  the  custom  of  the  coun- 
try, and  the  utmost  competition  value."  In  some  cases,  it  is 
said  to  be  founded  on  improvements  made  by  the  tenant  on 
his  farm,  the  beneficial  effects  of  which  are  not  exhausted,  so 
that  the  outgoing  tenant  claims  a  right  to  sell  them.  The 
landlords,  most  of  whom  are  absentees,  and  therefore  unable 
to  watch  and  know  the  changes  which  time  produces  on  the 
annual  value  of  their  estates,  have  so  long  received  an  unvary- 
ing sum  as  the  rent  of  each  farm,  and  each  farm  has  remained 
so  long  in  the  possession  of  one  tenant,  that  the  customary 
rent  is  now  considered  as  all  which  the  landlord  is  entitled  to 
receive ;  and  whatever  the  land  is  really  worth  beyond  this 
sum  accrues  to  the  benefit  of  the  tenant.  If  this  tenant  wishes 
to  quit  the  holding,  custom  gives  him  the  right  to  sell  what 
we  should  call  "  the  good-will  of  the  farm  "  for  his  own  bene- 
fit ;  that  is,  the  incoming  tenant  pays  his  predecessor  a  hand- 
some bonus  for  the  privilege  of  taking  the  farm  on  the  old, 
fixed  rent,  which  is  now  much  below  the  annual  value  of  the 
ground.  An  enterprising  landlord  sometimes  buys  up  this 
"right"  for  himself,  in  order  that  he  may  once  again  enter 
into  full  possession  of  his  property. 

Custom  is  here  seen  modifying  the  full  effect  of  competition 
on  the  price  of  land,  because  the  farm  is  not  actually  let  to 
the  highest  bidder;  and  it  often  has  equal  influence  on  the 
prices  of  other  commodities.  Among  the  publishers  of  books, 
for  example,  the  courtesy  of  the  trade,  as  it  is  termed,  often 
restrains  one  house  from  issuing  a  rival  edition  of  a  work  un- 
protected by  copyright  before  the  edition  published  by  another, 
who  first  risked  the  enterprise,  is  exhausted.  So,  also,  as  Mr. 
Mill  remarks,  "  all  professional  remuneration  is  regulated  by 
custom.  The  fees  of  physicians,  surgeons,  and  barristers,  the 
charges  of  attorneys,  are  nearly  invariable.  Not  certainly  for 
want  of  abundant  competition  in  those  professions ;  but  be- 
cause the  competition  operates  by  diminishing  each  competi- 
tor's chance  of  fees,  not  by  lowering  the  fees  themselves." 


THE    MEASURE    OF    VALUE : 


But  competition  is  the  general  rule ;  and  the  effect  of  unre- 
strained competition  is  to  distribute  the  value  of  a  product 
equally  among  its  various  producers,  leaving  neither  to  any  of 
them,  nor  to  the  consumer,  any  just  ground  of  complaint. 
Each  receives  in  exact  proportion  to  the  labor  which  he  has 
bestowed;  the  labor  of  all  was  equally  necessary  to  present 
the  article  in  its  finished  state ;  and  he  who  finally  consumes 
it,  therefore,  justly  pays  all  by  rendering  an  equivalent  amount 
of  labor.  I  place  stress  upon  this  point,  because  the  effect  of 
sharp  competition  is,  in  some  measure,  to  blind  our  eyes  to 
the  fact,  that  we  are  all  indebted  to  the  friendly  cooperation  of 
labor  for  all  the  necessaries,  all  the  comforts,  all  the  luxuries, 
which  we  enjoy.  This  cooperation  and  mutual  dependence  of 
all  the  arts  and  trades,  all  the  branches  of  industry,  all  ranks 
and  professions,  is  one  of  the  most  valuable  lessons  of  Political 
Economy ;  and  the  fair  rivalry  which  causes  the  distribution  of 
values  among  them,  in  proportion  to  their  respective  industry 
and  skill,  ought  not  to  create  feelings  of  mutual  jealousy  and 
dislike,  —  ought  not  to  give  rise  to  the  cry,  that  one  class  is 
taking  more  than  its  due  share  of  the  common  product.  It  is 
impossible  that  any  class,  as  a  class,  should  be  unduly  favored. 
Individual  cases  there  may  be,  where  fortune,  or  singularly 
propitious  circumstances,  may  swell  one's  gains  beyond  the 
common  standard.  But  as  a  general  rule,  competition,  if  un- 
fettered, must  tend  to  reduce  them  to  an  equality.  The  man- 
ufacturer is  no  more  dependent  upon  the  agriculturist,  than 
the  agriculturist  is  upon  the  manufacturer ;  "  the  plough,"  says 
Adam  Smith,  "  goes  frequently  the  easier  and  the  better  by 
means  of  the  labor  of  the  man  whose  business  is  the  most  re- 
mote from  the  plough."  The  merchant  is  equally  dependent 
upon  both,  and  both  depend  equally  upon  him.  Even  the 
common  laborer  is  as  much  indebted  to  his  employer  as  his 
employer  is  to  him,  each  rendering  a  peculiar  service,  without 
which  the  finished  product  could  not  be  placed  in  the  market 
or  exchanged  for  other  products. 

The  prejudice  which  prevents  this  truth  from  being  gener- 
ally recognized  is  the  very  natural  one,  which  considers  the 
value  of  the  finished  product  to  reside  chiefly  in  the  raw  ma- 
terial, and,  when  that  is  bulky  and  cheap,  to  believe  that  the 
great  enhancement  of  its  price,  which  takes  place  as  it  passes 


THE    DISTRIBUTION    OF    WEALTH.  53 

through  the  hands  of  the  manufacturer  and  merchant,  is  a 
needless  and  arbitrary  thing,  an  injury  both  to  the  farmer  and 
the  consumer.  But  it  is  not  so ;  in  either  case,  a  modification 
of  the  article  is  effected,  and  the  difficulty  which  the  consumer 
finds  in  obtaining  it  in  a  form  fit  for  use  is  lessened ;  and  it  is 
easy  to  show,  that  all  the  modifications  which  it  successively 
undergoes  conduce  to  that  end.  We  cannot  consume  or  use 
raw  cotton,  corn  in  the  husk,  or  unground  wheat.  The  trans- 
formations effected  by  art  are  just  as  necessary  preliminaries 
to  use,  and  therefore  produce  wealth,  just  as  much  as  the  trans- 
formations effected  by  nature.  Agriculture  is  but  one  branch 
of  what  has  been  happily  termed  "  appropriative  industry,"  or 
that  which  is  applied  merely  to  collecting  and  appropriating 
the  articles  which  nature  spontaneously  supplies.  It  includes, 
together  with  agriculture,  as  we  have  said,  the  operations  of 
mining,  fishing,  hunting,  and  collecting  the  wood  and  other 
products  of  the  forest. 

"  The  industry  which  prepares,"  says  Colonel  Torrens,  "  is, 
necessarily,  in  the  order  of  time,  secondary  to  that  which  ap- 
propriates the  gifts  of  nature.  But  though  man  must  originally 
have  lived  by  merely  availing  himself  of  nature's  spontaneous 
gifts,  yet  the  very  first,  or,  at  most,  the  very  second  step  to- 
wards knowledge  and  improvement,  must  have  led  him  to  the 
attempt  of  superadding  to  these  gifts  some  rude  species  of 
preparation.  Almost  the  whole  of  the  productions  of  nature 
are  presented  to  us  in  a  new  or  rude  state,  and,  if  it  were  not 
for  the  application  of  labor  to  the  preparing  and  forming  of 
them,  would  be  absolutely  without  utility.  Without  manu- 
facturing or  adaptive  industry,  therefore,  our  wealth  would  be 
necessarily  limited  to  that  scanty  supply  of  necessaries  which 
nature  presents  in  a  state  fit  for  immediate  consumption. 
Man  would  be  reduced  to  a  more  destitute  and  helpless  state 
than  that  in  which  he  has  ever  yet  been  found,  even  in  the 
most  barbarous  and  savage  countries.  He  would  possess  no 
species  .of  clothing  whatever ;  his  only  shelter  from  the  rigors 
of  the  climate  would  be  the  hollows  of  trees  and  the  caverns 
of  the  earth ;  and  his  only  food  would  be  fruits,  roots,  and  the 
flesh  of  such  of  the  smaller  animals  as  he  might,  in  his  naked 
and  helpless  state,  be  able  to  outran  and  overcome.  Indeed, 
with  respect  to  the  supply  of  his  wants,  he  would  be  placed 
5* 


54  THE    MEASURE    OF    VALUE. 

far  below  the  condition  of  the  inferior  animals ;  for  these  are 
clothed  by  the  hand  of  nature,  and  are  furnished  with  imple- 
ments of  admirable  construction  for  the  performance  of  every 
function  necessary  for  their  well-being. 

"  Again,  without  the  cooperation  of  manufacturing  industry, 
no  other  branch  of  industry  can  be  effectually  carried  on.  To 
fell  the  forest,  to  pierce  the  mine,  and  to  traverse  the  waters, 
we  must  have  the  aid  of  appropriate  implements  and  ma- 
chines ;  and  these  can  be  supplied  only  by  the  manufacturer. 
This  application  of  the  instruments  of  production  not  only 
gives  utility  to  articles  which  could  not  otherwise  possess  it, 
but  also  furnishes  us  with  the  power  of  appropriating  useful 
materials,  which,  without  its  cooperation,  would  be  for  ever  in- 
accessible." 

Commerce,  moreover,  as  a  source  of  wealth,  is  equally  pro- 
ductive with  manufacturing  and  appropriative  industry.  The 
most  precious  fruits  of  the  earth  cease  to  constitute  wealth 
when  there  is  a  superabundance  of  them,  and  when  they  no 
longer  find  wants  to  satisfy.  Commerce  comes  to  restore  util- 
ity to  them,  to  replace  them  among  articles  of  wealth,  by 
transporting  them  to  places  where  they  are  wanted.  Of  what 
avail  is  it  for  me  to  know,  that  there  is  tea  enough  in  China, 
and  coffee  enough  in  the  West  Indies ;  that  there  is  cotton  to 
spare  in  Carolina,  and  a  surplus  of  wheat  in  Ohio,  if  some 
kind  person  will  not  intervene  to  bring  these  articles  to  my 
doors,  and  offer  to  me  the  precise  quantity  of  eaqh  which  I 
need,  in  exchange  for  other  articles  of  which  I  may  have  a  su- 
perabundance. To  accomplish  this  transportation  and  distri- 
bution, each  individual  being  accommodated  with  what  he 
wants,  as  much  as  he  wants,  and  where  he  wants,  a  large  ap- 
paratus of  means  is  necessary.  Ships  must  be  built  and 
appointed,  warehouses  must  be  stocked,  correspondence  must 
be  arranged,  and  the  supplies  must  be  nicely  adapted  to  the 
wants  and  means  of  each  locality  which  is  to  be  provided  for. 
The  problem  already  mentioned,  that  of  supplying  a  large  city 
with  all  its  necessaries  and  comforts,  must  be  solved  in  every 
part,  in  all  its  complex  details.  Commerce  is  what  renders 
possible  that  vast  division  of  labor  to  which  the  industry  of 
civilized  man  owes  nearly  all  its  superior  efficiency  over  that 
of  the  savage.  He  who  devotes  a  lifetime  to  the  manufacture 


THE   DIVISION    OF   LABOR.  55 

of  one  small  article  —  needles,  for  instance  —  must  accumu- 
late an  immense  store  of  them ;  and  the  quantity  needed  by 
any  one  family  is  so  small,  that,  if  he  would  find  purchasers  for 
his  whole  stock,  without  the  help  of  professed  traders,  he  must 
give  two  thirds  of  his  time  to  seeking  purchasers  of  what  he 
manufactures  in  the  other  third.  The  merchant  takes  up  his 
whole  stock  at  once,  giving  him  its  full  value  in  whatever  he 
most  needs  in  return.  It  is  a  mere  truism  to  say,  that  who- 
ever converts  an  idle  and  superfluous  thing  into  a  highly  useful 
one,  creates  wealth.  The  merchant  does  this,  by  making  one 
man's,  or  one  country's,  superfluity  supply  another's  wants ; 
he  does  it  by  exchanging  superfluities,  and  thus  equalizing  the 
bounties  of  Providence.  By  his  instrumentality,  the  hard  and 
rugged  soil  of  Massachusetts,  with  its  long  winter,  yields  to  its 
industrious  cultivator  all  the  fruits  of  the  tropics,  all  the  pro- 
ductions of  the  most  favored  climes.  The  merchant  equalizes 
the  gifts  of  nature  in  another  manner,  —  by  transportation  in 
time  as  well  as  in  space.  The  surplus  from  an  unusually 
abundant  harvest  he  stores  up  in  reserve  against  the  possible 
deficiency  of  the  next  season.  He  gives  the  alarm,  when  there 
is  the  slightest  reason  to  fear  that  the  next  crop  may  be  a  fail- 
ure, by  raising  the  price  of  the  stock  already  on  hand,  and  thus 
renders  the  people  economical  in  its  consumption.  Through 
all  these  methods  his  agency  in  the  production  of  wealth  is  so 
important,  that  he  richly  earns  the  portion  of  it  which  falls  to 
his  lot  in  the  general  distribution  of  values. 


CHAPTER    V. 

THE    DIVISION    OF    LABOR  I     ITS    BENEFICIAL    AND    INJURIOUS    CON- 
SEQUENCES. 

THE  analysis  of  the  nature  of  value,  and  of  the  distribution 
of  wealth  among  its  producers,  has  already  brought  us  to  the 
conclusion,  that  the  cooperation  of  many  laborers  with  each 
other  is  one  great  cause  of  the  efficiency  or  productiveness  of 


56  THE    DIVISION    OF    LABOR. 

labor.  Labor  is  divided  in  two  ways  ;  —  first,  by  allotting  dif- 
ferent portions  of  a  process  to  different  hands,  all  cooperating 
with  each  other  in  the  production  of  one  article;  as  when 
eighteen  workmen  are  employed  in  one  pin  manufactory,  each 
devoting  himself  exclusively  to  one  of  the  eighteen  distinct  op- 
erations into  which  the  making  of  a  pin  is  divided.  The  sec- 
ond kind  of  division  takes  place  by  the  separation  of  employ- 
ments, the  several  sets  of  laborers  being  employed  at  different 
times  and  places,  and  in  distinct  pursuits,  so  that  their  coop- 
eration with  each  other,  though  real,  is  not  so  obvious  as  in  the 
former  case.  These  two  modes  of  the  division  of  labor,  says 
Mr.  Wakefield,  "may  be  termed  Simple  Cooperation  and 
Complex  Cooperation."  They  tend  equally  to  render  labor 
more  efficient. 

Thus,  the  manufacturer  is  just  as  dependent  on  the  miner, 
the  agriculturist,  and  the  trader,  as  the  workman  who  makes 
the  head  of  a  pin  is  on  him  who  cuts  the  wire  and  him  who 
sharpens  it.  The  services  of  all  are  needed,  before  all  the  com- 
munity can  obtain  the  article  in  its  finished  state  ;  and  there- 
fore the  ultimate  and  highest  value  of  that  article,  the  price  of 
it  when  ready  for  consumption,  is  to  be  divided  among  all  who 
have  concurred  in  its  production,  each  receiving  in  proportion 
to  the  labor  he  has  bestowed.  When  is  it  "ready  for  con- 
sumption "  ?  Not  surely  as  soon  as  it  has  received  the  last 
touch  of  skill  in  the  workshop,  but  only  when  it  is  offered  to 
the  person  who  wishes  to  use  it,  —  offered,  as  it  were,  at  his 
own  door,  in  just  the  quantity  that  he  desires,  and  in  exchange 
for  the  only  article  which  he  is  able  to  give  for  it.  Here  the 
intervention  of  the  trader  is  needed ;  a  peculiar  task  is  to  be 
performed,  which  can  be  done  to  advantage  only  by  one  who 
devotes  himself  to  it  altogether,  without  complicating  it  with 
other  employments.  The  wholesale  dealer  takes  off  the  man- 
ufacturer's whole  stock,  sparing  him  the  labor  of  finding  nu- 
merous purchasers  of  particular  quantities  ;  the  retailers  divide 
this  stock,  and  circulate  it  through  the  length  and  breadth  of 
the  land,  offering  to  each  small  villager  just  as  little  as  he 
needs,  and  receiving  in  exchange,  (sometimes  through  the  in- 
tervention of  money,  and%  sometimes  by  direct  barter,)  what- 
ever product  the  villager  has  to  offer.  The  importance  of  the 
service  thus  rendered  appears  from  the  large  portion  of  the  ulti- 


THE    DIVISION    OP    LABOR.  57 

mate  value  of  the  finished  product  which  falls  to  their  share ; 
the  profits  of  retailers  in  this  country  average  from  10  to  20 
per  cent.,  or  from  one  tenth  to  one  fifth  part  of  the  values  sold. 
And  while  competition  is  free,  it  is  certain,  for  the  reasons  al- 
ready explained,  that  this  is  only  a  fair  compensation  for  their 
services ;  if  it  were  not  so,  miners,  manufacturers,  and  even 
common  workmen,  would  turn  retailers,  and  undersell  them. 

I  borrow  another  illustration  from  Mr.  Mill,  "  In  the  pres- 
ent state  of  society,  the  breeding  and  feeding  of  sheep  is  the 
occupation  of  one  set  of  people,  dressing  the  wool  to  prepare 
it  for  the  spinner  is  that  of  another,  spinning  it  into  thread  of 
a  third,  weaving  the  thread  into  broadcloth  of  a  fourth,  dyeing 
the  cloth  of  a  fifth,  making  it  into  a  coat  of  a  sixth,  -without 
counting  the  multitude  of  carriers,  merchants,  factors,  and  re- 
tailers put  in  requisition  at  the  successive  stages  of  this  pro- 
cess. All  these  persons,  without  knowledge  of  one  another  or 
previous  understanding,  cooperate  in  the  production  of  the  ulti- 
mate result,  a  coat.  But  these  are  far  from  being  all  who  co- 
operate in  it ;  for  each  of  these  persons  requires  food  and  many 
other  articles  of  consumption ;  and  unless  he  could  have  relied 
that  other  people  would  produce  these  for  him,  he  could  not 
have  devoted  his  whole  time  to  one  step  in  the  succession  of 
operations  which  produce  one  single  commodity,  a  coat.  Ev- 
ery person  who  took  part  in  producing  food  or  erecting  houses 
for  this  series  of  producers  has,  however  unconsciously  on  his 
part,  combined  his  labor  with  theirs.  It  is  by  a  real  though 
unexpressed  concert,  '  that  the  body  who  raise  more  food  than 
they  want,  can  exchange  with  the  body  who  raise  more  clothes 
than  they  want ;  and  if  the  two  bodies  were  separated,  either 
by  distance  or  disinclination,  —  unless  the  two  bodies  should 
virtually  form  themselves  into  one,  for  the  common  object  of 
raising  enough  food  and  clothes  for  the  whole,  —  they  could  not 
divide  into  two  distinct  parts  the  whole  operation  of  producing 
a  sufficient  quantity  of  food  and  clothes.'  " 

The  advantages  of  Simple  Cooperation,  which  was  formerly 
regarded  as  the  only  kind  of  Division  of  Labor,  have  been  ad- 
mirably illustrated  by  Adam  Smith.  Passing  over,  as  it  is  so 
well  known,  his  illustration  from  pin-making,  I  adopt  an  ex- 
ample of  the  effects  produced  by  the  division  of  labor  that  is 
given  by  M.  Say,  in  a  passage  translated  by  Mr.  Mill.  It  is 


58  THE    DIVISION    OF    LABOR. 

taken  from  a  very  humble  branch  of  industry,  the  manufacture 
of  playing-cards.  "  It  is  said  by  those  engaged  in  the  busi- 
ness, that  each  card,  before  being  ready  for  sale,  undergoes  no 
less  than  seventy  operations,  every  one  of  which  might  be  the 
occupation  of  a  distinct  class  of  workmen.  And  if  there  are 
not  seventy  classes  of  work-people  in  each  card-manufactory, 
it  is  because  the  division  of  labor  is  not  carried  so  far  as  it 
might  be ;  because  the  same  workman  is  charged  with  two, 
three,  or  four  distinct  operations.  The  influence  of  this  distri- 
bution of  employments  is  immense.  I  have  seen  a  card-man- 
ufactory where  thirty  workmen  produced  daily  15,500  cards, 
being  about  500  cards  for  each  laborer ;  and  it  may  be  pre- 
sumed that,  if  each  of  these  workmen  were  obliged  to  perform 
all  the  operations  himself,  even  supposing  him  a  practised  hand, 
he  would  not  perhaps  complete  two  cards  in  a  day ;  and  the 
thirty  workmen,  instead  of  15,500  cards,  would  make  only  60." 

The  business  of  watch-making  in  England  is  said  by  Mr. 
Babbage  to  have  been  divided  into  102  distinct  branches,  to 
each  of  which  a  boy  may  be  put  apprentice,  and  taught  to 
practise  it  exclusively,  without  learning  to  work  at  any  other 
branch.  "  The  watch-finisher,  whose  business  it  is  to  put  to- 
gether the  scattered  parts,  is  the  only  one,  out  of  102  persons, 
who  can  work  at  any  other  department  than  his  own." 

The  prodigious  increase  in  the  efficiency  of  labor  caused  by 
division  of  the  task  is  attributed  by  Adam  Smith  to  three 
causes. 

1.  The  increased  dexterity,  corporeal  and  intellectual,  ac- 
quired by  frequent  repetition  of  one  simple  operation.  The 
laborer  thus  acquires  a  sleight  of  hand,  enabling  him  to  perform 
his  task  with  a  rapidity  which,  to  those  who  have  had  no  expe- 
rience in  the  work,  appears  truly  marvellous.  A  child  who 
fastens  on  the  heads  of  pins  will  repeat  an  operation  requiring 
several  distinct  motions  of  the  muscles  one  hundred  times  a 
minute,  for  several  successive  hours.  Gymnastic  exercises, 
many  feats  of  jugglery,  and  the  ease  and  brilliancy  of  execu- 
tion acquired  by  experienced  performers  on  musical  instru- 
ments, are  other  cases,  as  remarkable  as  they  are  familiar,  of 
the  rapidity  and  facility  acquired  by  repetition.  The  same  is 
true  of  operations  exclusively  mental ;  a  practised  accountant 
sums  up  a  column  of  figures  with  a  quickness  that  resembles 
intuition. 


THE    DIVISION    OF    LABOR.  59 

2.  The  saving  of  the  time  which  is  commonly  lost  in  pass- 
ing from  one  species  of  work  to  another,  and  in  the  change  of 
place,  position,  and  tools.     Thus,   says   Smith,   "a  country 
weaver  who  cultivates  a  small  farm  must  lose  a  good  deal  of 
time  in  passing  from  his  loom  to  the  field,  and  from  the  field 
to  his  loom.     When  the  two  trades  can  be  carried  on  in  the 
same  workhouse,  the  loss  of  time  is,  no  doubt,  much  less. 
Even  in  this  case,  however,  it  is  very  considerable.     A  man 
commonly  saunters  a  little  in  turning  his  hand  from  one  em- 
ployment to  another."     "  When  the  human  hand,  or  the  hu- 
man  head,"    adds   Mr.  Babbage,   "  has  been  for  some  time 
occupied  in  any  kind  of  work,  it  cannot  instantly  change  its 
employment  with  full  effect.     The  muscles  of  the  limbs  em- 
ployed have  acquired  a  flexibility  during  their  exertion,  and 
those  not  in  action  a  stiffness  during  rest,  which  renders  every 
change  slow  and  unequal  in  the  commencement.     Long  habit 
also  produces  in  the  muscles  exercised  a  capacity  for  enduring 
fatigue  to  a  much  greater  degree  than  they  could  support  un- 
der other  circumstances."     So,  also,  in  the  use  of  tools,  time 
is  lost  in  shifting  from  one  to  another ;  and  when  many  imple- 
ments are  required  for  the  different  occupations,  at  least  three 
fourths  of  them  must  be  constantly  idle  and  useless. 

3.  The  invention  of  a  great  number  of  machines,  which  fa- 
cilitate and  abridge  labor  in  all  its  departments.     The  division 
of  labor  reduces  a  complex  operation  to  many  simple  tasks, 
each  of  which  is  incessantly  repeated ;   and  this  is  precisely 
what  machines  may  be  made  most  easily  to  perform.     The 
whole  of  a  workman's  attention,  moreover,  being  directed  to 
one  simple  object,  easier  and  readier  methods  of  obtaining  that 
object  are  more  likely  to  occur  to  him,  than  when  his  thoughts 
are  dissipated  among  a  variety  of  things.     I  have  heard  that 
most  of  the  improvements  in  machinery,  which  have  been 
made  of  late  years  in  the  manufactories  at  Lowell,  were  first 
suggested  by  the  common  workmen  who  were  engaged   in 
tending  the  machines.     In  the  first  steam-engine,  says  Adam 
Smith,  "  a  boy  was  constantly  employed  to  open  and  shut  al- 
ternately the  communication  between  the  boiler  and  the  cylin- 
der, according  as  the  piston  either  ascended   or  descended. 
One  of  those  boys,  who  loved  to  play  with  his  companions, 
observed  that,  by  tying  a  string  from  the  handle  of  the  valve 


60  THE    DIVISION    OF    LABOR. 

which  opened  the  communication  to  another  part  of  the  ma- 
chine, the  valve  would  open  and  shut  without  his  assistance, 
and  leave  him  at  liberty."  Thus  one  of  the  most  important 
steps  in  the  improvement  of  steam-engines  was  made  by  an 
idle  boy. 

4.  Another  advantage  derived  from  the  division  of  labor  was 
first  pointed  out  by  Mr.  Babbage ;  —  the  more  economical  dis- 
tribution of  labor,  by  classing  the  work-people  according  to 
their  capacity.     "  Different  parts  of  the  same  series  of  opera- 
tions require  unequal  degrees  of  skill  and  bodily  strength ;  and 
those  who  have  skill  enough  for  the  most  difficult,  or  strength 
enough  for  the  hardest,  parts  of  the  labor,  are  made  much  more 
useful  by  being  employed  solely  in  them  ;  the  operations  which 
everybody  is  capable  of,  being  left  to  those  who  are  fit  for  no 
others."     Thus,  in  a  cotton  manufactory,  men,  women,  and 
children  are  employed  on  different  portions  of  the  work,  and, 
of  course,  at  very  different  rates  of  wages.     Obviously  there 
would  be  a  great  waste,  if  men  were  employed  to  perform  tasks 
which  children  might  do  as  well,  or  if  fingers  which  were  deli- 
cate enough  for  hem-stitching  and  embroidery,  were  devoted  to 
raising  heavy  weights  or  swinging  sledge-hammers.     In  needle- 
making,  Mr.  Babbage  tells  us,  the  scale  of  remuneration  for 
different  parts  of  the  process,  performed  by  different  work-peo- 
ple, varies  from  sixpence  to  twenty  shillings  a  day. 

5.  One  of  the  principal  advantages  of  the  division  of  labor, 
says  Mr.  Senior,  "  arises  from  the  circumstance  that  the  same 
exertions  which  are  necessary  to  produce  a  single  given  result 
are  often  sufficient  to  produce  many  hundred  or  many  thou- 
sand similar  results.     The  Post- Office  supplies  a  familiar  illus- 
tration.    The  same  exertions  which  are  necessary  to  send  a 
single  letter  from  Falmouth  to  New  York  are  sufficient  to  for- 
ward fifty,  and  nearly  the  same  exertions  will  forward  ten 
thousand.     If  every  man  were  to  effect  the  transmission  of  his 
own  correspondence,  the  whole  life  of  an  eminent  merchant 
might  be  passed  in  travelling,  without  his  being  able  to  deliver 
all  the  letters  which  the  Post- Office  forwards  for  him  in  a 
single  evening.     The  labor  of  a  few  individuals,  devoted  exclu- 
sively to  the  forwarding  of  letters,  produces  results  which  all 
the  exertions  of  all  the  inhabitants  of  Europe  could  not  effect, 
each  person  acting  independently." 


THE    DIVISION    OF    LABOR.  61 

The  extent  of  the  division  of  labor  must  always  be  limited 
by  the  extent  of  the  market.  Ten  workmen  can  make  48,000 
pins  in  a  day ;  but  they  cannot  do  so  to  advantage,  unless 
there  is  a  daily  consumption  of  pins  to  that  amount.  If  there 
be  a  daily  demand  for  no  more  than  24,000  pins,  they  must 
either  lose  half  the  day's  work,  or  change  their  occupation,  — 
that  is,  lessen  the  division  of  labor  by  engaging  in  two  sepa- 
rate tasks.  Hence,  the  division  of  labor  cannot  be  carried  to 
its  farthest  limit  except  in  the  case  of  products  capable  of  dis- 
tant transport,  and  the  consequent  increase  of  consumption ;  or 
where  the  manufacture  is  carried  on  amidst  a  dense  popula- 
tion, creating  an  extensive  local  demand.  Where  the  popula- 
tion is  limited,  many  trades,  elsewhere  distinct,  are  practised 
by  the  same  individual.  In  a  small  village,  the  same  person  is 
surgeon,  doctor,  and  apothecary ;  while,  in  a  large  city,  there  is 
separate  employment  for  each  of  these  practitioners,  and  even 
for  subdivisions  of  their  profession  into  the  several  occupations 
of  dentists,  oculists,  accoucheurs,  &c.  The  village  grocer  deals 
not  only  in  groceries,  but  in  dry  goods,  crockery,  hardware, 
books,  and  stationery ;  and  if  a  Yankee,  he  may  also  edit, 
print,  and  publish  a  newspaper,  keep  a  school,  and  go  to  Con- 
gress. In  large  cities,  the  sale  of  a  single  article  of  grocery 
may  form  a  large  and  lucrative  business ;  in  Boston  and  New 
York,  there  are  shops  where  nothing  is  sold  but  tea.  All  im- 
provements in  the  modes  of  transportation,  as  by  roads,  canals, 
and  railways,  obviously  promote  the  division  of  labor,  by 
widening  the  market  which  each  locality  can  command  for  its 
special  products. 

"  The  division  of  labor  is  also  limited,  in  many  cases,"  says 
Mr.  Mill,  "  by  the  nature  of  the  employment.  Agriculture,  for 
example,  is  not  susceptible  of  so  great  a  division  of  occupa- 
tions as  many  branches  of  manufactures,  because  its  different 
occupations  cannot  possibly  be  simultaneous.  One  man  can- 
not be  always  ploughing,  another  sowing,  and  another  reaping. 
A  workman  who  only  practised  one  agricultural  operation 
would  be  idle  eleven  months  of  the  year.  The  same  person 
may  perform  them  all  in  succession,  and  have,  in  almost  every 
climate,  a  considerable  amount  of  unoccupied  time.  The 
combination  of  labor  of  which  agricultural  industry  is  suscep- 
tible is  chiefly  that  which  Mr.  Wakefield  calls  Simple  Cooper- 
6 


62  THE    DIVISION    OF    LABOR. 

ation ;  many  persons  employed  together  in  the  same  work. 
To  execute  a  great  agricultural  improvement,  it  is  often  neces- 
sary that  many  laborers  should  work  together ;  but  in  general, 
except  the  few  whose  business  is  superintendence,  they  all 
work  in  the  same  manner.  A  canal  or  a  railway  embankment 
cannot  be  made  without  a  combination  of  many  laborers  ;  but 
they  are  all  excavators,  except  the  engineer  and  a  few  clerks." 

The  advantages  of  the  division  of  labor,  however,  we  must 
admit,  are  subject  to  one  serious  drawback.  Few  things  tend 
so  effectually  to  dwarf  the  mind  and  stunt  the  faculties  as  the 
incessant  and  long-continued  repetition  of  a  very  simple  task, 
—  a  mechanical  movement  which  is  repeated  with  as  li ttle  ef- 
fort of  thought  as  if  it  were  performed  by  a  machine.  Even 
Adam  Smith  remarks,  that  constant  application  to  such  a  task 
"  necessarily  renders  the  workmen  as  stupid  and  ignorant  as  it 
is  possible  to  make  a  human  being."  And  Say  adds,  that  "  a 
man  whose  whole  life  is  devoted  to  the  execution  of  a  single 
operation,  will  most  assuredly  acquire  the  faculty  of  executing 
it  better  and  quicker  than  others;  but  he  will,  at  the  same 
time,  be  rendered  less  fit  for  every  other  occupation,  bodily  and 
intellectual ;  his  other  faculties  will  be  gradually  blunted  and 
extinguished,  and  the  man,  as  an  individual,  will  degenerate 
in  consequence.  To  have  never  done  anything  but  make  the 
eighteenth  part  of  a  pin,  is  a  sorry  account  for  a  human 
being  to  give  of  his  existence."  The  division  even  of  intel- 
lectual labor,  however  it  may  tend  to  excellence  and  insure 
success  in  a  single  department,  is  not  without  a  similar  perni- 
cious result.  The  successful  pursuit  of  a  single  art,  or  of  the 
fraction  of  a  single  science,  is  but  poor  compensation  for  the 
loss  of  all  versatility  and  alertness  of  mind,  and  for  allowing 
most  of  the  faculties  to  rust  by  disuse.  One  may  become  a 
good  accountant,  an  expert  mathematician,  and  evert  a  skilful 
lawyer,  without  being  anything  more  than  the  fraction  of  a 
man. 


THE    NATURE    OF    CAPITAL.  DO 

^ 

CHAPTER    VI. 

THE    NATURE    OF    CAPITAL,   AND   THE    MEANS    OF    ITS    INCREASE. 

ANOTHER  circumstance  on  which  the  efficiency  of  labor 
largely  depends  is  the  cooperation  of  capital,  or  stock.  All 
capital  is  wealth,  but  all  wealth  is  not  capital.  The  furniture 
of  a  rich  man's  house,  for  instance,  —  his  carpets,  his  plate,  his 
paintings,  and  much  even  of  the  food  which  is  daily  placed 
upon  his  table,  —  forms  a  portion  of  his  wealth,  but  not  of  his 
capital.  All  these  articles  contribute  to  his  enjoyment,  perhaps 
some  of  them  are  necessary  for  his  sustenance ;  but  they  do 
not  directly  aid  him  in  the  creation  of  other  values.  As  they 
are  consumed,  or  slowly  worn  out,  they  create  nothing  to  re- 
place them,  and  leave  behind  them  nothing  but  the  remembrance 
of  the  gratification  which  they  have  afforded.  They  are  the  fruit 
of  previous  industry  indeed,  having  been  created,  as  all  other 
values  are,  by  labor  ;  but  with  the  exception  of  the  little  food 
which  is  necessary  to  support  life,  they  do  not  sustain  present 
labor,  do  not  aid  in  the  production  of  fresh  values.  Capital  is 
that  portion  of  wealth  which  is  consumed,  not  for  purposes  of 
mere  enjoyment,  not  for  immediate  gratification,  but  to  aid  in  the 
production  of  more  wealth.  It  is  still  consumed,  with  greater 
or  less  rapidity ;  but  its  value  disappears  in  one  shape  only  to 
reappear  in  another.  The  necessity  for  the  employment  of 
capital  arises  from  the  fact,  that  man  cannot  labor  to  any  good 
purpose  with  his  hands  alone.  He  must  have  tools,  imple- 
ments, machinery,  raw  material ;  if  the  article  on  which  he  is 
engaged  requires  time  for  its  manufacture,  he  must  be  fed, 
clothed,  and  lodged  while  he  is  occupied  in  manufacturing  it. 
The  aggregate  of  wealth  existing  in  these  various  forms,  de- 
signed either  to  aid  the  laborer  in  his  work,  or  to  support  him 
while  working,  is  capital.  It  is  consumed,  but  its  value  ap- 
pears again  in  the  larger  amount  of  wealth  which  industry 
produces  when  thus  assisted.  The  tools  and  machinery  wear 
out ;  but  the  products  which  they  have  aided  in  creating  en- 
able the  capitalist  to  replace  them  with  a  profit.  Raw  cotton 


64  THE   NATURE    OF    CAPITAL. 

is  consumed  in  large  quantities,  and  reappears  as  cloth ;  the 
seed-corn  is  buried  in  the  earth,  but  in  a  few  months,  the  har- 
vest yields  twenty  or  thirty  fold. 

Labor  is  limited  by  capital,  because  labor  cannot  be  prose- 
cuted to  any  advantage  without  capital.  Yet  this  fact  does 
not  contradict  our  general  proposition,  that  wealth  is  created 
by  labor  alone  ;  for  capital  itself  is  created  by  labor,  and  might 
be  called  consolidated  or  invested  labor.  But  although  labor  is 
thus  limited,  it  is  by  no  means  proportioned  to  the  amount  of 
capital  employed.  A  master-shoemaker,  with  a  capital  of  not 
more  than  $  5,000,  may  keep  twenty  journeymen  and  appren- 
tices in  constant  employment ;  while  a  manufacturer  of  gold 
and  silver  plate,  or  a  wholesale  merchant,  with  a  capital  of 
half  a  million  of  dollars,  may  not  pay  wages  to  more  than 
thirty  or  forty  persons.  McCulloch  observes,  that  "  a  manu- 
facturer's power  to  employ  labor  is  not  measured  by  the  total 
amount  of  his  capital,  but  by  the  amount  of  that  portion  only 
which  is  circulating  capital.  A  capitalist  possessed  of  a  hun- 
dred steam-engines,  and  of  £  50,000  of  circulating  capital,  has 
no  greater  demand  for  labor,  and  does  not,  in  fact,  employ  a 
single  workman  more,  than  the  capitalist  who  has  no  ma- 
chinery, and  only  <£  50,000  devoted  exclusively  to  the  payment 
of  wages."  Boots  and  shoes,  for  instance,  are  at  present  man- 
ufactured without  machinery,  and  with  the  aid  only  of  a  few 
cheap  tools.  With  a  lapstone,  a  hammer,  a  knife,  and  an  awl, 
the  journeyman  can  begin  work ;  and  even  the  raw  material 
which  he  needs  is  so  frequently  "  turned  over,"  as  the  phrase 
goes,  or  so  quickly  converted  from  leather  into  merchantable 
boots  and  shoes,  that,  if  the  articles  can  be  sold  as  soon  as  they 
are  manufactured,  a  few  dollars  will  keep  him  constantly  sup- 
plied with  sufficient  stock.  On  the  other  hand,  an  immense 
capital  must  be  vested  in  machinery,  before  the  business  of 
weaving  cotton  or  woollen  cloth  on  a  great  scale  can  begin. 

Even  in  the  rudest  states  of  society,  among  savage  nations, 
capital  exists,  though  in  small  quantities,  and  performs  its  ap- 
propriate functions.  "  The  wretched  native  of  New  Holland," 
says  Colonel  Torrens,  "  has  his  spear,  his  fishing  implements, 
and  his  canoe,  for  the  purpose  of  abridging  his  labor,  —  of  per- 
forming operations  of  which  he  would  otherwise  be  incapable, 
and  appropriating  productions  of  nature  which,  but  for  the  aid 


THE    NATURE    OF    CAPITAL.  65 

of  these  rude  instruments,  would  for  ever  have  remained  be- 
yond his  reach."  Before  he  labors  directly  to  capture  the  wild 
tenants  of  the  forests  and  the  rivers,  he  labors  to  prepare  him- 
self for  the  task  by  manufacturing  the  necessary  implements ; 
consequently,  the  exchangeable  value  of  the  articles  which  he 
finally  obtains  is  measured  by  the  quantity  of  labor,  both  di- 
rect and  indirect,  which  was  devoted  to  their  production.  No 
one  will  give  labor  of  either  sort  for  nothing.  That  which  was 
bestowed  on  the  manufacture  of  bows  and  arrows  must  be 
compensated  just  as  much,  and  in  the  same  ratio,  as  that 
which  was  given  to  the  pursuit  and  killing  of  wild  animals ; 
otherwise,  no  one  will  make  bows  and  arrows.  The  law  of 
distribution,  therefore,  that  the  value  of  the  completed  product 
will  be  divided  among  its  producers  in  exact  proportion  to  the 
labor  bestowed  by  each,  is  not  altered  by  the  cooperation  of 
capital  with  labor.  The  profits  of  capital  are  the  reward  of 
labor  just  as  much  as  the  wages  directly  paid  to  the  laborer. 

Capital  exists,  as  I  have  said,  among  savages ;  and  it  accu- 
mulates very  rapidly  with  the  progress  of  civilization.  So 
rapid,  indeed,  is  its  increase,  and  so  vast  becomes  its  aggre- 
gation, that  it  constitutes  the  chief  difference  in  point  of  effi- 
ciency between  the  labor  of  the  savage  and  that  of  civilized 
man.  The  Australian  or  the  Indian  may  be  as  muscular  as 
the  European ;  he  often  works  as  hard,  and  is  even  more  ca- 
pable of  enduring  hardship  and  privation.  He  also  practises 
the  division  of  labor  to  some  extent,  as  a  whole  tribe  often 
unite  in  the  chase  or  in  war,  and  make  larger  captures  by  act- 
ing in  concert  and  parcelling  out  the  work  among  each  other. 
But  their  labor  on  the  whole  is  miserably  inefficient  and  un- 
productive, because  it  is  aided  only  by  a  trifling  amount  of 
capital.  "  Ten  men,  abundantly  supplied  with  capital,  and 
skilful  in  the  use  of  it,  would  be  able  to  appropriate  a  greater 
quantity  of  fish,  and  of  useful  mineral  productions,  than  could 
be  appropriated  by  ten  thousand,  whose  only  instrument  of 
production  was  the  labor  of  their  hands." 

The  savage  does  not  amass  capital,  because  he  is  incapable 
of  foresight  and  self-denial.  What  he  obtains  is  devoted  to 
the  gratification  of  the  present  moment,  or  is  wasted.  This, 
in  truth,  is  the  chief  reason  why  he  does  not  till  the  ground ; 
he  often  has  knowledge  enough  for  this  end,  his  powers  of  ob- 


DO  THE   NATURE    OF    CAPITAL. 

servation  being  largely  developed.  He  notices  slight  peculiar- 
ities of  vegetation,  which  escape  the  eye  of  the  white  man ; 
and  by  this  means,  is  often  enabled  to  find  his  way  through  the 
trackless  forests.  He  knows  that  edible  fruits  and  grains  are 
produced  from  seed.  But  he  is  not  economical  and  prudent 
enough  to  reserve  seed-corn  for  agriculture,  or  to  lay  in  a  store 
of  food  which  will  enable  him  to  expend  labor  on  the  ground, 
to  dig  and  plant,  with  the  expectation  of  reaping  the  fruits  of 
his  labor  only  after  an  interval  of  some  months.  He  is  obliged 
to  give  all  his  toil  to  the  necessities  of  the  present  hour,  be- 
cause he  is  not  prudent  enough  to  save,  and  not  industrious 
enough  to  work  when  there  is  no  immediate  necessity  for 
working.  Though  the  common  opinion  runs  the  other  way, 
I  believe  that  man  has  no  natural  instinct  for  saving,  no  origi- 
nal propensity  for  labor  ;  —  none,  at  least,  that  is  not  constant- 
ly overridden  by  other  and  stronger  propensities.  The  hardest 
lesson  for  children  and  savages  to  learn  is  that  of  economy,  — 
the  necessity  of  bridling  the  inclination  or  appetite  of  the  mo- 
ment, with  a  view  to  some  prospective  benefit.  Long  and 
hard  experience  has  taught  this  lesson  to  the  full-grown  and 
reflecting  man,  and  taught  it  so  effectually,  that,  as  is  often  the 
case,  the  acquired  inclination  overrides  the  original  impulses, 
and  all  other  passions  are  merged,  not  merely  in  the  love  of 
accumulation,  but  in  that  of  saving.  We  not  infrequently 
hear  of  misers  who  will  give  away  thousands,  while  they  are 
depriving  themselves  almost  of  the  necessaries  of  life  for  the 
sake  of  saving  units.  Exertion  is  naturally  pleasant,  it  is  true  ; 
yet  only  when  directed  by  the  caprice  of  the  moment,  as  in 
sport ;  not  the  long-continued  and  monotonous  exertion  which 
is  necessary  for  the  attainment  of  a  future  good.  That  always 
requires  self-restraint,  a  contest  with  and  a  victory  over  our 
original  inclinations. 

This  view  of  the  difference  between  the  barbarian  and  the 
civilized  man  leads  directly  to  a  knowledge  of  the  origin  of 
capital  and  the  means  of  its  increase.  It  begins  in  saving,  and 
is  enlarged  only  by  the  continued  exercise  of  frugality.  Labor 
creates  wealth,  the  object  of  which  is,  as  we  have  seen,  the 
gratification  of  desire ;  and  the  portion  of  wealth  which  is 
saved  from  the  gratification  of  our  immediate  wants,  and  re- 
served to  aid  our  future  labor,  so  that  the  future  product  may 


THE   NATURE    OF    CAPITAL.  67 

be  greater,  is  capital.  The  inducement  to  the  practice  of  such 
frugality  is  always  strong  enough  in  a  civilized  community ; 
for  the  ability  to  save  increases  in  a  geometrical  ratio  with  its 
exercise.  C'est  le  premier  pas  qui  coute.  The  hardest  strug- 
gle, the  severest  exercise  of  self-denial,  is  to  make  the  begin- 
ning, to  spare  a  little  from  our  daily  comforts  when  as  yet  we 
are  entirely  dependent  upon  the  fruits  of  our  unaided  labor. 
Afterwards,  that  little  which  was  reserved  works  along  with 
us,  and  the  surplus  is  greater  at  the  end  of  the  second  year, 
though  we  have  practised  no  additional  self-restraint.  Soon, 
the  aggregate  of  these  savings  produces  more  than  our  original, 
individual  earnings,  and  our  expenditures  may  come  up  again 
to  the  full  measure  of  what  they  would  have  been  if  no  fru- 
gality had  been  practised  at  the  outset ;  and  yet  accumulation 
goes  on  as  rapidly  as  if  we  had  been  able  to  reserve  the  whole 
original  product  of  our  labor,  and  subsist  upon  nothing.  The 
industrial  organization  of  society  is  now  so  perfect,  that  the 
smallest  savings  can  be  utilized,  or  devoted  immediately  to 
active  employment  as  capital.  This  rapid  progress  of  accumu- 
lation, operating  like  the  constantly  accelerating  force  of  grav- 
itation, supplies  the  strong  motive  for  frugality,  which  operates 
like  a  charm  in  the  swift  growth  of  national  opulence. 

It  is  now  easy  to  explain  the  difference,  on  which  so  much 
stress  is  laid,  between  productive  and  unproductive  consump- 
tion. Take  the  case,  referred  to  in  a  former  chapter,  of  a  la- 
borer who  has  saved  $  100  from  his  yearly  earnings.  At  the 
end  of  the  year,  having  this  sum  in  reserve,  he  may  immedi- 
ately expend  it  all  in  giving  an  entertainment  to  his  friends,  or 
purchasing  finer  clothes  and  furniture  for  his  family.  In 
neither  case  would  the  values  thus  consumed  aid  either  his 
labor  or  that  of  any  other  being ;  in  the  first  case,  it  would  be 
consumed  all  at  once,  the  wine  being  drunk,  the  music  heard, 
the  delicacies  eaten,  and  there  would  be  an  end  of  his  savings ; 
in  the  other  case,  the  enjoyment  would  only  be  spread  over  a 
little  longer  time ;  the  clothes  and  furniture,  in  the  course  of  a 
few  months  or  years,  would  be  worn  out,  and  the  $  100  would 
then  have  equally  disappeared  without  return.  Such  is  what 
is  termed  unproductive  consumption. 

But  let  us  suppose,  as  before,  that  at  the  end  of  the  year  he 
placed  the  money  in  a  savings'  bank,  or  bought  a  machine 


THE    NATURE    OF    CAPITAL. 


with  it,  by  the  aid  of  which  his  labor  would  produce  half  as 
much  again  as  in  the  former  twelvemonth.  In  the  bank,  as 
has  been  shown,  it  would  successively  and  rapidly  assume  dif- 
ferent forms,  at  each  transformation  aiding  labor  or  setting  it 
in  motion,  at  each  yielding  a  profit,  and  leaving  a  final  profit 
for  the  benefit  of  him  who  deposited  it.  This  share  of  profit 
accruing  to  the  owner  is  comparatively  small,  because  he  has 
committed  the  management  of  his  property,  and  the  risk  of 
losing  it,  to  others,  and  they  must  be  paid  for  the  labor  and 
hazard  of  its  superintendence.  If  he  chooses  to  use  it  himself, 
as  in  the  case  supposed  of  purchasing  a  machine  with  it,  his 
yearly  earnings  will  be  much  increased,  and  the  surplus  will  be 
enough  to  keep  the  machine  in  repair,  to  buy  another  when 
the  first  one  is  worn  out,  and  to  leave  a  larger  profit  at  the  end 
of  the  year,  which  surplus,  again,  he  may  spend  productively 
or  unproductively. 

In  all  the  cases  now  enumerated,  it  is  evident  that  the  labor- 
er's surplus  earnings  are  consumed.  In  the  first  two  cases,  be- 
ing consumed  only  to  obtain  present  enjoyment,  whether  of  a 
longer  or  shorter  duration,  they  never  appear  again  ;  in  the  last 
two,  being  consumed  only  for  the  purpose  of  aiding  labor,  they 
reappear  in  the  increased  product  of  that  labor.  And  so  it 
must  be  in  every  supposable  case,  except  where  the  savings 
are  obtained  in  the  form  of  gold  or  silver  money,  and  are 
buried  in  the  earth ;  then,  indeed,  they  are  not  consumed,  be- 
cause they  are  not  used  at  all,  either  for  present  gratification 
or  future  gain. 

We  see  the  fallacy,  then,  of  the  common  opinion,  that  the 
prodigals  who  waste  their  substance  in  riotous  or  ostentatious 
living,  though  they  and  their  families  afterwards  suffer  for  it, 
are  yet  benefactors  to  the  community,  because  their  liberal  ex- 
penditures keep  laborers  in  employ,  increase  the  profits  of  shop 
keepers,  and  diffuse  benefits  all  around  them.  He  who  saves, 
on  the  contrary,  appears  in  the  light  of  one  who  hoards  ;  sav- 
ing seems  but  another  word  for  keeping  a  thing  to  one's  self, 
while  spending  appears  to  be  distributing  it  among  others. 

This  popular  error  arises  chiefly  from  the  fact,  that  the 
wasteful  person  consumes  his  income  and  his  capital  mostly 
on  the  spot  where  he  resides,  where  the  public  eye  can  follow 
his  wealth,  and  see  it  passing  into  the  hands  of  laborers, 


THE    NATURE    OF    CAPITAL.  69 

tradesmen,  and  dependents.  But  these  persons  do  not  obtain 
it  for  nothing.  They  give  services,  goods,  articles  of  luxury,  in 
exchange ;  and  when  these  services  are  rendered,  and  the  arti- 
cles consumed,  there  is  an  end  of  the  prodigal's  wealth.  He 
has  nothing  left,  and  they  are  but  little  richer  than  before, 
having  only  made  their  ordinary  gains,  or  received  their  accus- 
tomed wages.  The  community,  then,  is  the  poorer  by  the 
whole  amount  which  the  prodigal  has  squandered.  The  sav- 
ings of  the  frugal  person,  on  the  other  hand,  are  often  with- 
drawn from  sight  of  the  immediate  neighborhood,  being  quietly 
invested  in  a  bank  or  manufactory,  where  they  are  consumed 
productively  ;  that  is,  they  are  still  applied  to  the  purchase  of 
labor  or  goods,  and  so  equally  keep  industry  in  motion,  though 
this  beneficial  result  is  not  easily  traced  back,  and  ascribed  to 
the  proper  author  of  it. 

To  make  this  point  clearer,  I  will  take  a  particular  example. 
Suppose  a  prodigal  maintains  an  establishment  of  ten  menial 
servants,  at  an  expense  of  $  3,000  a  year.  At  the  end  of  the 
year,  he  has  expended  this  portion  of  his  capital,  and  the  ser- 
vants have  received  their  usual  wages  ;  but  as  they  have  toiled 
only  to  pamper  his  desire  of  enjoyment,  and  to  gratify  his  love 
of  ostentation,  no  products  of  their  labor  remain  at  the  end  of 
the  year,  and  they  are  no  better  off  than  they  would  have  been 
if  they  had  obtained  equal  wages  for  making  boots  and  shoes, 
or  laboring  on  a  farm.  Then  suppose  a  frugal  person,  having 
an  equal  sum  of  $  3,000  a  year  to  spend,  instead  of  hiring  me- 
nial servants  with  it,  should  invest  it  in  the  shoemaking  busi- 
ness or  in  agriculture.  It  is  obvious  that  an  equal  number  of 
persons  might  thus  be  employed,  and  at  the  same  wages ;  at 
the  end  of  the  year,  moreover,  instead  of  nothing  being  left, 
there  would  be  an  additional  stock  of  one  or  two  thousand 
pairs  of  boots  and  shoes,  or  of  four  or  five  thousand  bushels  of 
corn.  The  capital  of  the  frugal  person  and  the  riches  of  the 
community  would  thus  be  augmented  to  the  extent  perhaps  of 
$  4,000  (ordinary  allowance  being  made  for  profits)  ;  and  this 
would  be  a  fund  for  the  support  of  industry  for  an  indefinite 
period,  or  until  it  came  into  the  hands  of  a  prodigal  who 
should  waste  it  in  luxuries  and  self-indulgence. 

Adam  Smith  happily  illustrates  this  subject,  by  comparing 
the  frugal  person  to  the  founder  of  a  public  charity,  in  that  he 


70  THE    NATURE    OF    CAPITAL. 

establishes,  as  it  were,  a  perpetual  fund  for  the  purpose  of  sup- 
plying indigent  laborers  with  employment  at  good  wages  for 
all  time  to  come.  But  the  prodigal  is  like  him  "  who  perverts 
the  revenues  of  some  pious  foundation  to  profane  purposes,  as 
he  pays  the  wages  of  idleness  with  those  funds  which  the  fru- 
gality of  his  forefathers  had,  as  it  were,  consecrated  to  the 
maintenance  of  industry." 

It  should  be  observed,  that  the  only  fund  from  which  savings 
can  be  made,  and  capital  thereby  increased,  is  the  annual  in- 
come or  revenue  of  the  individual.  If  the  manufacturer,  for 
instance,  at  the  end  of  the  year,  has  merely  got  his  capital  back 
again,  the  values  created  exactly  replacing  those  which  were 
consumed,  though  he  has  preserved  his  property,  he  has  effect- 
ed no  saving ;  he  is  neither  richer  nor  poorer  than  he  was  be- 
fore. His  capital  ought  to  be  replaced  with  a  profit;  and  the 
aggregate  of  the  profits  for  a  year,  not  the  aggregate  of  all  the 
values  produced  during  that  time,  constitutes  his  income  or 
revenue.  This  income,  like  the  year's  wages  of  a  laborer, 
seems  to  be  the  fund  naturally  designed  for  his  own  mainte- 
nance and  that  of  his  family.  A  portion  of  it  must  be  spent  in 
this  manner,  —  that  is,  must  be  spent  unproductively ;  for 
health  and  strength  must  be  kept  up  by  food,  drink,  and 
clothing;  in  addition  to  which,  in  order  to  keep  up  the  full 
vigor  of  mind  and  body,  a  small  portion  of  every  one's  income 
ought  to  be  devoted  to  amusement  and  a  few  luxuries.  But 
if  these  personal  expenditures,  and  the  replacement  of  the  cap- 
ital consumed  during  the  year,  do  not  absorb  the  whole  in- 
come, what  remains  is  a  true  saving,  an  addition  to  capital,  a 
benefit  both  to  the  individual  and  the  community. 

"  It  would  be  a  great  error,"  says  Mr.  Mill,  "  to  regret  the 
large  proportion  of  the  annual  produce,  which,  in  an  opulent 
country,  goes  to  supply  unproductive  consumption.  It  would 
be  to  lament  that  the  community  has  so  much  to  spare  from 
its  necessities,  for  its  pleasures  and  for  all  higher  uses.  This 
portion  of  the  produce  is  the  fund  from  which  all  the  wants  of 
the  community,  other  than  that  of  mere  living,  are  provided 
for ;  the  measure  of  its  means  of  enjoyment,  and  of  its  power 
of  accomplishing  all  purposes  not  productive.  That  so  great 
a  surplus  should  be  available  for  such  purposes,  and  that  it 
should  be  applied  to  them,  is  a  subject  only  of  congratulation. 


THE    NATURE    OF    CAPITAL.  71 

The  things  to  be  regretted  and  to  be  remedied  are  the  prodi- 
gious inequality  with  which  this  surplus  is  distributed,  and  the 
large  share  which  falls  to  the  lot  of  persons  who  render  no 
equivalent  service  in  return." 

The  wealth  which  is  employed  in  creating  more  wealth  has 
been  divided  by  Adam  Smith  into  Fixed  and  Circulating  Cap- 
ital. "  There  are  two  ways,"  he  says,  "  in  which  a  capital  may 
be  employed  so  as  to  yield  a  revenue  or  profit. 

"  First,  it  may  be  employed  in  raising,  manufacturing,  or 
purchasing  goods,  and  selling  them  again  with  a  profit.  The 
capital  employed  in  this  manner  yields  no  revenue  or  profit  to 
its  employer,  while  it  either  remains  in  his  possession  or  con- 
tinues in  the  same  shape.  The  goods  of  the  merchant  yield 
him  no  revenue  or  profit  till  he  sells  them  for  money,  and  the 
money  yields  him  as  little  till  it  is  again  exchanged  for  goods. 
His  capital  is  continually  going  from  him  in  one  shape,  and 
returning  to  him  in  another ;  and  it  is  only  by  means  of  such 
circulation,  or  successive  exchanges,  that  it  can  yield  him  any 
profit.  Such  capitals,  therefore,  may  properly  be  called  circu- 
lating capitals. 

"  Secondly,  it  may  be  employed  in  the  improvement  of  land, 
in  the  purchase  of  useful  machines  and  implements  of  trade, 
or  in  such  like  things  as  yield  a  revenue  or  profit  without 
changing  masters  or  circulating  any  further.  Such  capitals, 
therefore,  may  properly  be  called  fixed  capitals." 

This  distinction  has  been  further  illustrated  by  the  remark, 
that  Circulating  Capital  fulfils  the  whole  of  its  office  in  pro- 
duction by  a  single  use  ;  while  Fixed  Capital  produces  its  ef- 
fect, not  by  being  parted  with,  but  by  being  kept,  and  its 
efficacy  is  not  exhausted  by  a  single  use.  Observe,  also,  that 
the  same  articles  may  be  Circulating  Capital  while  in  the 
hands  of  one  person,  and  become  Fixed  Capital  as  soon  as 
they  are  transferred  to  another.  A  stock  of  finished  ploughs, 
for  instance,  belongs  to  the  former  class  while  they  are  owned 
by  the  manufacturer  or  the  merchant,  who  expects  not  to  use, 
but  to  sell  them,  and  can  obtain  his  profit  only  from  the  pro- 
ceeds of  such  a  sale ;  but  they  become  Fixed  Capital  when 
they  are  purchased  by  the  farmers,  who  expect  to  retain  and 
use  them  till  they  are  worn  out. 

Fixed  Capital,  Adam  Smith  remarks,  "consists  chiefly  of 
the  four  following  articles :  — 


72  THE   NATURE    OF    CAPITAL. 

"  First,  of  all  useful  machines  and  implements  of  trade 
which  facilitate  and  abridge  labor. 

"  Secondly,  of  all  buildings  used  for  the  purpose  of  trade  or 
manufacture,  such  as  shops,  warehouses,  and  farm  buildings. 
They  are  a  sort  of  instruments  of  trade,  and  may  be  consid- 
ered in  the  same  light 

"  Thirdly,  of  the  improvements  of  land,  of  what  has  been 
profitably  laid  out  in  clearing,  draining,  inclosing,  manuring, 
and  reducing  it  into  the  condition  most  proper  for  culture. 
An  improved  farm  may  be  regarded  in  the  same  light  as  one 
of  those  useful  machines  which  facilitate  and  abridge  labor. 

"  Fourthly,  of  the  acquired  and  useful  abilities  of  all  the 
members  of  the  society.  The  acquisition  of  such  talents  by 
the  maintenance  of  the  acquirer  during  his  education,  study, 
or  apprenticeship,  costs  an  expense,  which  is  a  capital  fixed 
and  realized,  as  it  were,  in  his  person.  The  improved  dexter- 
ity of  a  workman  may  be  considered  in  the  same  light  as  a 
machine  or  instrument  of  trade,  which  facilitates  and  abridges 
labor. 

"  The  Circulating  Capital  is  composed  likewise  of  four 
parts :  — 

"First,  of  the  money  by  means  of  which  all  the  other  three 
are  circulated  and  distributed  to  their  proper  consumers. 

"  Secondly,  of  the  stock  of  provisions  in  the  possession  of 
the  butcher,  the  grazier,  &c.  for  the  purpose  of  sale. 

"  Thirdly,  of  the  materials,  whether  altogether  rude,  or  more 
or  less  manufactured,  of  clothes,  furniture,  and  building,  which 
are  not  yet  made  up,  but  remain  in  the  hands  of  the  growers, 
manufacturers,  or  merchants. 

"  Fourthly,  of  the  work  which  is  made  up  and  completed,  but 
is  still  in  the  hands  of  the  merchant  or  manufacturer ;  such  as 
the  finished  work  in  the  shops  of  the  smith,  the  goldsmith,  the 
jeweller,  and  the  China  merchant.  The  Circulating  Capital 
consists  in  this  manner  of  the  provisions,  materials,  and  fin- 
ished work  of  all  kinds,  which  are  in  the  hands  of  their  respect- 
ive dealers,  and  of  the  money  that  is  necessary  for  circulating 
and  distributing  them  to  their  final  consumers." 

To  this  enumeration  by  Adam  Smith  must  be  added  two 
classes  of  articles,  which  seem  to  have  been  excluded  by  him 
for  insufficient  reasons ;  namely,  food  and  the  other  necessaries 


HOW    CAPITAL    IS    INCREASED.  73 

of  life,  and  dwelling-houses.  The  name  of  capital  has  been 
denied  to  these  two  classes  of  things,  because  they  are  con- 
sumed as  revenue,  with  a  view  to  subsistence  or  enjoyment, 
and  not  as  capital,  with  a  view  to  production.  But  it  may  be 
replied,  that  the  laborer,  before  he  can  construct  or  fashion 
anything,  must  not  only  have  raw  materials  and  tools,  but 
must  be  secure  of  a  lodging  and  a  dinner.  An  expenditure 
for  all  four  of  these  objects  is  necessary  before  he  can  complete 
his  task ;  and  the  aggregate  of  such  expenditure  is  therefore 
properly  considered  as  an  advance  of  capital,  the  means  for 
this  advance  having  been  previously  obtained  by  abstinence  or 
frugality. 


CHAPTER    VII. 

THE    CIRCUMSTANCES    WHICH    FAVOR    THE    GROWTH    OF    CAPITAL: 
THE    SECURITY    OF    PROPERTY. 

THE  circumstances  on  which  the  rapidity  of  accumulation, 
or  the  growth  of  capital,  depends,  are  various,  and  the  study 
of  them  is  one  of  the  most  interesting  researches  in  which  the 
economist  or  the  historian  can  engage.  Laws  and  political 
institutions  generally  have  a  vast  influence  in  this  respect,  as 
well  as  differences  of  national  character  and  peculiarities  of 
geographical  position.  The  results  of  the  former  may  be 
traced,  by  the  light  both  of  theory  and  history,  often  in  quar- 
ters where  they  would  be  the  least  suspected,  the  most  promi- 
nent and  marked  effect  being  frequently  attributable  to  the 
noiseless  working,  through  many  generations,  of  peculiar  cus- 
toms and  laws,  which  do  not  attract  much  notice  precisely  be- 
cause they  are  ingrained  or  deeply  seated.  Foremost  among 
these  silent  but  potent  causes,  which  escape  the  attention  of 
the  superficial  observer,  must  be  ranked  the  legislative  and  con- 
suetudinary provisions  which  regulate  the  succession  to  the 
estates  of  persons  deceased.  I  believe  the  striking  differences 
in  the  social  and  economical  condition  of  the  English  and  the 
American  people,  who  are  of  the  same  blood,  who  speak  the 
7 


74  HOW    CAPITAL    IS    INCREASED. 

same  language,  who  have  many  similar  traits  of  national  char- 
acter, and  whose  political  institutions  in  the  main  are  very 
much  alike,  are  more  attributable  to  their  different  modes  of 
regulating  the  succession  to  property,  than  to  any  other  single 
cause  whatsoever.  But  this  subject  will  be  more  conveniently 
considered  hereafter. 

Our  general  question  is,  When  is  labor  most  energetic,  uni- 
versal, and  effective  in  the  creation  of  wealth,  and  by  what 
means  are  the  motives  to  accumulation  from  savings  most 
strongly  stimulated  ?  I  cannot  attribute  much  importance  in 
this  respect  to  what  are  called  the  natural  advantages  of  a 
country,  —  its  genial  climate,  fertile  soil,  large  expanse  of  ter- 
ritory, or  happy  geographical  position.  These  natural  advan- 
tages, as  they  are  termed,  have  fearful  drawbacks  in  the  indo- 
lence and  sense  of  security  which  they  foster,  and  the  luxurious 
habits  to  which  the  people  who  possess  them  incline,  their 
chief  luxury  always  being  repose.  Some  of  the  countries  of 
South  America  are  as  highly  favored  in  these  respects  as  any 
part  of  the  habitable  globe  ;  but  it  is  not  to  this  portion  of  our 
continent  that  we  look  for  instances  of  the  most  rapid  growth 
of  national  wealth.  "  In  the  ancient  world  and  in  the  Middle 
Ages,"  it  has  been  well  remarked,  "  the  most  prosperous  com- 
munities were  not  those  which  had  the  largest  territory  or  the 
most  fertile  soil,  but  rather  those  which  had  been  forced  by 
natural  sterility  to  make  the  utmost  possible  use  of  a  conven- 
ient maritime  situation ;  as  Tyre,  Marseilles,  Venice,  the  free 
cities  on  the  Baltic,  and  the  like."  And  that  we  may  not 
over-estimate  even  this  convenience  of  position,  it  should  be 
remembered  that  Athens,  Tyre,  and  Venice  stand  just  where 
they  did,  though  their  commercial  glory  has  long  since  passed 
away.  The  geographical  position  of  Greece,  with  its  long 
line  of  deeply  indented  sea-coast  on  a  tideless  sea,  is  precisely 
what  it  was  when  Greece  almost  monopolized  the  commerce 
and  the  arts  of  the  Mediterranean.  She  is  now  the  most  in- 
significant kingdom  in  Europe,  and  with  difficulty  supports 
an  ignorant  and  thinly  scattered  population. 

But  we  need  not  go  abroad  for  illustrations  of  this  truth. 
At  home,  —  here  in  Massachusetts,  —  where  we  are  indebted 
to  the  rigor  of  our  climate  and  the  hardness  of  our  soil  for  our 
only  natural  exports,  capital  has  increased,  and  is  increasing,  as 


HOW    CAPITAL    IS    INCREASED.  75 

fast  as  in  any  portion  of  the  United  States,  —  faster  probably 
than  in  Louisiana,  with  its  rich  staples  of  cotton  and  sugar, 
and  its  unequalled  position  at  the  outlet  into  the  great  Gulf 
of  five  thousand  miles  of  internal  navigation,  —  as  fast  as  in 
Pennsylvania,  with  its  inexhaustible  stores  of  mineral  wealth, 
and  its  soil  so  fertile  that  one  county  might  produce  more 
wheat  than  the  whole  Bay  State.  Natural  wealth  enervates 
both  body  and  mind.  Where  an  abundance  can  be  had  with 
little  labor,  much  labor  will  never  be  practised.  What  seems 
a  paradise  on  earth,  the  nearest  natural  semblance  of  a  Gar- 
den of  Eden,  may  be  found  in  the  isles  of  the  South  Pacific, 
or  in  the  West  Indies,  .where  a  race  of  white  colonists  seem  to 
be  fast  becoming  as  feeble  and  brutish  as  were  the  natives 
whom  they  dispossessed.  Here  again,  as  in  so  many  other  in- 
stances, we  are  reminded  that  the  essential  quality  of  wealth, 
properly  so  called,  is  difficulty  of  attainment,  —  difficulty  that 
can  be  overcome  only  by  long  and  strenuous  exertion. 

The  principal  causes  of  the  rapid  growth  of  national  opu- 
lence are  moral  rather  than  physical ;  a  situation  which  shall 
make  foreign  commerce  at  least  practicable,  seems  to  be  the 
only  indispensable  condition  that  is  not  connected  with  the 
character  of  the  people.  By  moral  causes  alone  can  we  hope 
to  solve  that  interesting  and  difficult  problem,  the  decline  and 
fall  of  the  opulence  and  grandeur  of  Spain.  Hardly  two  cen- 
turies ago,  Spain  was  what  Great  Britain  is  now,  the  richest, 
noblest,  and  most  powerful  kingdom  in  Europe,  on  whose  do- 
minions the  sun  never  set,  and  whose  people,  distinguished 
alike  in  arts  and  arms,  carried  their  flag  and  their  renown  to 
either  pole,  and  encircled  the  earth  with  the  golden  chains  of 
their  commerce.  Now,  language  seems  hardly  adequate  to 
describe  their  poverty  and  abasement,  and  the  wretched  condi- 
tion of  Spain.  I  do  not  speak  merely  of  the  decline  of  hei 
military  strength  and  political  influence  among  the  nations  of 
Europe.  This  is  an  effect,  rather  than  a  cause,  of  the  great 
change  which  has  taken  place  in  the  economical  condition  of 
her  people,  —  of  the  decay  of  her  commerce,  the  loss  of  her 
manufactures,  the  wretched  state  of  her  agriculture,  and  the 
gradual  wasting  away  of  her  population.  And  her  decline 
cannot  be  attributed  to  the  loss  of  her  American  colonies; 
since  it  became  marked  at  least  a  century  before  the  first  of 


76  HOW    CAPITAL    IS    INCREASED. 

these  colonies  threw  off  her  yoke ;  and  since  apparently  the 
same  causes  which  have  enfeebled  the  mother  country,  have 
prevented  all  progress  among  her  emancipated  children  in  the 
Western  world.  In  Mexico,  Bolivia,  and  Peru,  as  well  as  from 
the  foot  of  the  Pyrenees  to  Cadiz,  the  right  arm  of  industry 
seems  to  be  paralyzed,  and  what  remains  of  energy,  courage, 
and  intelligence  among  the  people  is  wasted  in  dissensions 
and  civil  broils,  instead  of  being  devoted  to  the  golden  pur- 
suits of  peace.  The  physical  circumstances  in  the  two  cases 
are  as  unlike  as  possible ;  yet,  in  point  of  natural  advantages, 
it  would  be  difficult  to  say  which  is  the  more  favored.  A 
fairer  field  for  the  development  of  labor  and  enterprise  can 
hardly  be  imagined,  than  that  which  exists  on  the  high  table- 
lands of  Mexico  and  among  the  romantic  valleys  of  Spain. 
Improved  by  English  or  Anglo- American  hands,  under  Eng- 
lish or  Anglo-American  institutions,  they  would  become  store- 
houses of  wealth  for  future  generations. 

To  return  to  our  general  question :  —  The  moral  causes 
which  most  effectually  stimulate  labor  and  frugality,  and  there- 
by make  capital  accumulate  most  rapidly,  are  those  which  se- 
cure to  the  laborer  with  the  greatest  certainty  the  fruit  of  his 
industry ;  which  raise  the  kind  or  degree  of  labor  to  the  high- 
est practicable  point ;  and  which  offer  the  highest  reward,  the 
largest  measure  of  social  advantages,  to  the  holder  of  capital, 
—  apportioning  that  reward  strictly  to  the  comparative  amount 
which  he  holds,  and  making  it  most  immediate  and  attractive. 
There  are  three  points,  then,  which  may  be  more  fully  stated 
thus :  — 

1.  That  the  laborer  shall  be  sure  of  receiving  the  full  amount 
of  his  wages,  or  shall  be  protected  in  the  ownership  of  the 
values  which  he  has  produced. 

2.  That  the  skill,  intelligence,  and  education  of  the  laboring 
classes  generally  shall  be  raised  to  the  highest  point,  —  so  that, 
the  labor  of  one  well-trained  mechanic  being  as  effective  at 
least  as  that  of  three  raw  hands  or  mere  laborers,  the  working 
class  shall  contain  as  many  as  possible  of  the  former,  and  as 
few  as  possible  of  the  latter  description. 

3.  That  the  savings  when  made,  or  the  capital  when  accu- 
mulated, shall  be  attended  with  as  high  a  rate  of  profit,  and  as 
large  a  measure  of  physical  comfort,  social  consideration,  and 
political  influence  as  possible. 


THE    SECURITY    OF    PROPERTY.  77 

The  illustrations  which  may  be  offered  upon  these  three 
points  are  enough,  I  think,  to  prove  that  they  are  vastly  more 
important  than  any  measure  of  natural  advantages,  including 
even  that  on  which  most  stress  has  been  laid,  —  the  inherited 
qualities  of  race,  or  the  national,  inbred  inclination  to  labor  and 
enterprise.  I  am  no  great  believer  in  the  natural  excellences 
of  Anglo-Saxon  blood,  but  I  have  great  faith  in  the  acquired 
excellences  of  Anglo-Saxon  institutions.  My  reason  for  dis- 
trust in  the  former  case  is,  that  time  was,  and  that  not  many 
years  ago,  when  the  Dutch  certainly,  if  not  the  Swiss,  were 
decidedly  superior  to  the  English  in  industry,  frugality,  and 
the  spirit  of  commercial  adventure.  In  this  last  respect,  even 
the  Spaniards  and  the  Portuguese  were  ahead  of  their  English 
competitors.  And  here  in  America,  where  our  population  is 
a  conglomerate  of  all  the  races  of  the  earth,  the  first  generation 
born  on  American  soil,  be  its  parents  English,  Irish,  Dutch, 
French,  or  Spaniards,  is  sure  to  show  the  characteristic  Amer- 
ican trait,  —  a  disposition  to  toil,  to  dare,  and  to  save.  Re- 
sults so  general  can  be  accounted  for  only  by  some  peculiarity 
in  the  air  that  we  breathe,  or  in  the  institutions  that  we  live 
under.  And  as  the  researches  of  chemists  have  proved  that 
our  atmosphere  contains  about  the  usual  proportion  of  oxygen 
and  nitrogen,  I  am  inclined  to  refer  this  peculiarity  altogether 
to  our  "  institutions  "  ;  —  understanding,  however,  this  term  in 
its  widest  sense  ;  making  it  comprehend  not  merely  our  repub- 
lican polity,  our  national  and  State  organizations,  but  our  re- 
publican habits,  feelings,  and  tendencies,  —  our  disposition  to 
manage  our  own  affairs  in  our  own  town-meetings,  and  there 
to  allot  the  greatest  trust  to  him  who  is  distinguished  above 
all  others  by  this  very  American  trait,  this  disposition  to  toil, 
to  dare,  and  to  save,  be  his  race  or  parentage  what  it  may. 

First,  then,  security  in  the  receipt  and  enjoyment  of  the  fruits 
of  labor  is  not  merely  the  great  stimulus,  but  the  indispensable 
prerequisite,  to  general  industry  and  frugality.  "  Security " 
means  not  only  the  absence  of  war,  tyranny,  intestine  commo- 
tions, and  all  other  causes  of  spoliation,  interference,  and  un- 
due control,  but  the  absence  of  all  dread,  of  all  probability,  or 
possibility,  of  such  unhappy  contingencies.  Labor  and  enter- 
prise are  elastic,  and  will  quickly  recover  from  the  effects  of 
any  sudden  or  unexpected  misfortune,  however  great,  if  the 
7* 


78  HOW    CAPITAL    IS    INCREASED. 

workmen  or  adventurers  think  they  have  a  reasonable  protec- 
tion against  its  recurrence.  If  the  calamity  is  such  that  the 
country  is  not  actually  depopulated  by  it,  the  next  harvest  will 
make  up  the  temporary  scarcity  of  food,  and  less  than  a  year's 
labor  will  replace  the  customary  stock  of  manufactured  com- 
modities ;  for  the  circulating  capital  of  the  manufacturer  is 
usually  "  turned  over,"  as  the  phrase  goes,  or  consumed  and 
reproduced,  oftener  than  once  in  a  year ;  and  if  his  fixed  capi- 
tal, his  machines,  buildings,  and  other  improvements,  require  a 
little  longer  time  for  their  value  to  be  restored,  (the  potent  in- 
fluence of  credit  causing  them  to  be  actually  rebuilt  in  a  very 
short  period,)  it  is  still  matter  of  certain  calculation,  that  a  few 
years  will  make  up  the  loss.  But  if  a  dread  should  hang  over 
the  people,  lest  a  similar  catastrophe  should  soon  recur,  few 
would  labor  at  all,  and  those  few  would  put  but  little  heart 
into  their  work  ;  since  few  are  willing  to  produce  what  others 
are  to  consume.  The  general  feeling  would  be  like  that  which 
prevails  on  shipboard,  after  all  hope  of  saving  the  vessel  is  lost : 
"  let  us  eat  and  drink,  for  to-morrow  we  die." 

Security  has  been  well  defined  by  Mr.  Mill  as  "the  com- 
pleteness of  the  protection  which  society  affords  to  its  mem- 
bers. This  consists  of  protection  by  the  government,  and 
against  the  government.  The  latter  is  the  more  important. 
Where  a  person  known  to  possess  anything  worth  taking 
away  can  expect  nothing  but  to  have  it  torn  from  him,  with 
every  circumstance  of  tyrannical  violence,  by  the  agents  of  a 
rapacious  government,  it  is  not  likely  that  many  will  exert 
themselves  to  produce  much  more  than  necessaries.  This  is 
the  acknowledged  explanation  of  the  poverty  of  many  fertile 
tracts  of  Asia,  which  were  once  prosperous  and  populous." 
Take,  for  instance,  the  very  fertile  and  finely  situated  tract, 
once  called  Mesopotamia,  from  its  position  between  the  two 
great  rivers  Tigris  and  Euphrates,  —  now  a  parched  and  dusty 
plain,  roamed  over,  rather  than  inhabited,  by  a  few  tribes  of 
half-starved  Bedouin  Arabs.  Yet  there  stood,  and  there  now 
stand  the  ruins  of,  the  great  city  of  Nineveh,  that  "  exceeding 
great  city,"  of  three  days'  journey,  which  probably  contained 
over  half  a  million  of  inhabitants.  What  a  vast  suburban  and 
rural  population  must  have  existed  in  the  immediate  vicinity, 
in  order  to  supply  that  great  and  wealthy  metropolis  with 


THE    SECURITY    OF    PROPERTY.  79 

food !  Over  three  thousand  years  ago,  the  banks  of  the  Tigris 
must  have  been  nearly  as  populous  as  are  now  the  banks  of 
the  Seine  near  Paris.  Their  depopulation  and  consequent 
aridity,  but  few  traces  now  remaining  of  the  gigantic  works 
by  which  that  great  plain  was  formerly  irrigated,  must  be  as- 
cribed to  the  constant  sense  of  insecurity  arising  from  many 
changes  of  dynasty,  predatory  inroads,  invasion  and  conquest, 
and  the  rigors  of  war  exercised  by  barbarian  conquerors.  Yet 
these  invasions,  so  far  as  appears  from  history,  were  not  so  fre- 
quent, but  that  the  people  might  with  ease  have  recovered  from 
them  during  the  intervals,  had  not  the  constant  fear  that  they 
might  recur  at  any  day  gradually  paralyzed  all  effort,  till  the  na- 
tion at  last  wasted  away,  and  a  feeble  remnant  sought  shelter 
among  the  mountains,  leaving  that  fertile  plain  to  desolation. 

Such  are  the  evils  of  a  government  which  cannot  withstand 
aggression  from  abroad.  Hardly  less  injurious  in  its  effects  is 
the  government  which  is  too  feeble  or  indolent  to  protect  the 
people  against  themselves  ;  which  cannot  enforce  the  laws,  or 
guard  the  community  against  the  machinations  and  violence 
of  the  turbulent,  the  discontented,  and  the  ambitious,  so  that 
society  is  a  constant  prey  to  rapine,  confusion,  and  civil  broils. 
Hence  the  present  condition  of  Mexico  and  most  of  the  South 
American  republics,  where,  though  the  soil  and  climate  are 
among  the  finest  on  earth,  and  mineral  wealth  abounds,  yet 
agriculture  is  impeded,  trade  languishes,  and  manufactures 
cannot  be  established,  the  bonds  of  society  being  virtually  dis- 
solved, and  the  country  wasted  by  anarchy  and  misrule. 

Arbitrary  exactions,  uncertain  in  amount,  and  uncertain  as 
to  the  time  when  they  will  be  made,  do  vastly  more  injury 
than  larger  amounts  taken  by  fixed  and  regular  taxation.  In- 
dustry will  accommodate  itself  to  heavy  burdens,  and  even 
flourish  under  them,  if  the  pressure  be  equable  and  constant, 
so  that  all  calculations  respecting  the  future  may  be  made  with 
as  much  certainty  as  if  there  were  no  weight  to  support.  The 
regular  tax  comes  to  be  esteemed  as  one  of  the  charges,  or  a 
part  of  the  cost,  of  production,  —  having  the  same  effect  as  a 
more  rigorous  climate,  or  a  less  fertile  soil,  would  have,  in  in- 
creasing the  amount  of  labor  required.  The  people  of  Eng- 
land, for  instance,  are  at  this  moment  taxed  more  heavily, — 
they  pay  a  larger  sum  to  their  rulers,  than  was  ever  levied  from 


80 


HOW    CAPITAL    IS    INCREASED. 


a  population  of  equal  size  by  the  most  cruel  and  despotic  gov- 
ernment of  ancient  times.  If  it  were  possible  to  distribute  the 
enormous  weight  of  English  taxation  with  perfect  equality 
and  fairness,  making  it  bear  on  all  interests  alike,  and  on  ev- 
ery individual  in  just  proportion  to  his  means,  I  should  be  far 
from  considering  it  as  any  material  obstacle  to  the  prosperity 
of  the  country.  But  the  changes  which  from  time  to  time  be- 
come necessary,  or  are  thought  to  be  necessary,  in  that  distri- 
bution, —  the  great  change,  for  instance,  that  was  made  by  the 
abolition  of  the  Corn  Laws,  the  frequent  changes  in  the  sugar 
duties,  and  the  uncertainty  of  the  amount  required  by  the  Poor 
Laws,  —  are  very  serious  evils.  The  change  when  completed 
in  all  its  effects,  the  new  law  once  thoroughly  incorporated  by 
time  with  the  old  ones,  may  be  an  improvement;  but  the 
transition  is  always  injurious.  Better  a  bad  system,  so  that  it 
be  fixed,  than  a  fluctuating  and  uncertain  one.  An  alteration 
of  the  law,  a  shifting  of  the  burden,  always  produces  some 
change  in  the  direction  of  labor  and  capital,  whereby  a  portion 
of  the  skill  already  acquired  by  practice  is  wasted,  a  portion  of 
the  machinery  already  built  becomes  useless,  and  time  and 
capital  must  be  consumed  in  learning  new  employments  and 
constructing  new  machines.  This  is  one  evil  caused  by 
change ;  and  another  is,  that,  most  of  the  operations  of  indus- 
try in  modern  times  being  complex,  and  covering  much  time 
and  space,  people  are  tempted  to  engage  in  them  only  by  the 
nice  calculations  that  are  made  of  their  probable  ultimate  re- 
sults ;  any  uncertainty  as  to  the  manner  in  which  these  results 
may  be  affected  by  taxation,  any  probability  that  the  law  may 
be  changed  while  the  process  is  yet  incomplete,  may  prevent 
the  enterprise  from  being  undertaken  at  all.  It  is  not  too 
much  to  say,  that,  in  this  country,  for  the  last  thirty  years, 
there  has  not  been  a  time  when  commercial  and  manufactur- 
ing enterprise  was  not  materially  retarded  by  the  apprehension 
that  the  Congress  then  in  session,  or  the  ensuing  one,  might 
make  some  important  modifications  in  the  tariff  of  customs- 
duties. 

"  The  only  insecurity,"  says  Mr.  Mill,  "  which  is  altogether 
paralyzing  to  the  active  energies  of  producers,  is  that  arising 
from  the  government  or  from  persons  invested  with  its  author- 
ity. Against  all  other  depredators  there  is  a  hope  of  defending 


THE    SECURITY    OF    PROPERTY.  81 

one's  self.  Greece  and  the  Greek  colonies  in  the  ancient  world, 
Flanders  and  Italy  in  the  Middle  Ages,  by  no  means  enjoyed 
what  any  one  with  modern  ideas  would  call  security;  the 
state  of  society  was  most  unsettled  and  turbulent ;  person  and 
property  were  exposed  to  a  thousand  dangers.  But  they  were 
free  countries ;  they  were  neither  arbitrarily  oppressed,  nor  sys- 
tematically plundered  by  their  governments.  Against  other 
enemies,  the  individual  energy  which  their  institutions  called 
forth  enabled  them  to  make  successful  resistance.  Their  la- 
bor, therefore,  was  eminently  productive,  and  their  riches, 
while  they  remained  free,  were  constantly  on  the  increase. 
The  Roman  despotism,  putting  an  end  to  wars  and  internal 
conflicts  throughout  the  empire,  relieved  the  subject  popula- 
tion from  much  of  the  former  insecurity ;  but  because  it  left 
them  under  the  grinding  yoke  of  its  own  rapacity,"  —  witness 
the  administration  of  Verres  in  Sicily,  which  has  been  damned 
to  everlasting  fame  by  the  eloquent  invective  of  Cicero, — 
"  they  became  enervated  and  impoverished,  until  they  were  an 
easy  prey  to  barbarous  but  free  invaders.  They  would  neither 
fight  nor  labor,  because  they  were  no  longer  suffered  to  enjoy 
that  for  which  they  fought  and  labored." 

"  Much  of  the  security  of  person  and  property  in  modern 
nations  is  the  effect  of  manners  and  opinion,  rather  than  of  law. 
There  are  countries  in  Europe  where  the  monarch  is  nominally 
absolute ;  but  where,  from  the  restraints  imposed  by  estab- 
lished usage,  no  subject  feels  practically  in  the  smallest  danger 
of  having  his  possessions  arbitrarily  seized,  or  a  contribution 
levied  on  them  by  the  government."  These  countries  —  Rus- 
sia, for  instance  —  are  far  better  off  in  respect  of  security  than 
France,  where,  not  long  ago,  the  institutions  of  government 
were  nominally  not  unlike  our  own,  but  where  there  is  great 
probability  of  a  revolution  once  a  fortnight.  No  government 
is  ever  wicked  enough  to  aim  directly  and  avowedly  at  the  en- 
couragement of  vice,  the  distress  of  innocence,  and  the  punish- 
ment of  goodness.  Even  an  Asiatic  despotism  professes,  and 
probably  intends,  to  punish  theft,  perjury,- fraud,  and  unpro- 
voked injury,  in  all  cases  where  its  own  interest  is  not  imme- 
diately concerned ;  that  is,  of  course,  in  the  great  majority  of 
cases  that  arise  among  its  subjects.  It  may  omit  many  of  the 
forms  and  precautions  that  civilized  nations  have  come  to  ob- 


82 


THE  ENCOURAGEMENT  OF  MANUFACTURES 


serve,  as  the  safeguards  of  innocence  and  preservatives  against 
unintentional  wrong ;  it  may  administer  wild  justice,  but  jus- 
tice is  its  aim ;  it  wields  the  sword  against  unprovoked  aggres- 
sions upon  persons  or  property,  and  often  with  terrible  effect. 


CHAPTER    VIII. 

THE  INCREASE  OF  CAPITAL  AS  AFFECTED  BY  THE  ENCOURAGE- 
MENT OF  MANUFACTURES,  AND  BY  THE  CONCENTRATION  OF 
THE  PEOPLE  IN  CITIES  AND  TOWNS. 

THE  second  of  the  moral  causes  indicated  as  affecting  the 
increase  of  capital  is,  that  such  increase  is  most  rapid  in  any 
country,  when,  from  the  variety  of  employments  that  exist 
there,  most  of  its  inhabitants  may  be  engaged  in  those  occupa- 
tions for  which  they  are  peculiarly  fitted  by  nature,  which  re- 
quire most  skill  and  intelligence,  and  in  which,  consequently, 
their  labor  is  most  productive. 

If  the  labor  of  one  practised  and  skilful  artisan  is  equal  to 
that  of  at  least  three  raw  hands  or  rude  laborers,  then  it  is  very 
much  for  the  economical  interests  of  a  country,  that  as  many 
as  possible  of  its  inhabitants  should  be  skilled  artisans,  and  as 
few  as  possible  should  be  raw  laborers.  We  say  "  as  many  as 
possible  "  ;  because  some  rude  labor  is  always  needed.  There 
must  be,  in  every  country,  some  hewers  of  wood  and  drawers 
of  water,  —  some  work  that  tasks  a  man's  thews  and  sinews 
very  severely,  while  it  affords  but  little  employment  to  his 
brains,  —  such  work  as  is  often  performed  by  machines  and 
domesticated  animals,  but  which  the  circumstances  of  time 
and  place  sometimes  absolutely  require  to  be  performed  by 
men,  —  usually  by  men  who  are  capable  of  nothing  else. 
There  is  a  large  proportion  of  such  work  required  in  agricul- 
ture, where  one  skilful  and  careful  farmer  can  profitably  direct 
the  exertions  of  a  dozen  or  more  hands,  in  such  operations  as 
ditching,  fencing,  making  hay,  and  the  like.  Many,  though 
not  so  many,  laborers  of  this  lowest  class  are  also  required  in 


THE  CONCENTRATION  OF  THE  PEOPLE.  83 

manufactures,  where  numerous  skilled  and  expert  hands  re- 
quire to  be  waited  on  by  mere  porters  and  hewers,  in  order 
that  the  valuable  time  of  the  former  may  not  be  wasted  on  the 
coarser  operations  that  are  necessary.  Thus  the  bricklayer 
must  have  his  hod-carrier ;  the  driver  of  the  steam-engine  must 
have  his  fireman  ;  the  printing-office  must  have  its  errand-boys, 
technically  called  "  devils."  There  is  work  even  on  board  a 
ship  at  sea,  which  can  only  be  performed  by  boys.  Commerce 
demands  a  higher  average  of  skill  and  intelligence  from  those 
who  are  engaged  in  it  than  any  other  of  the  great  branches  of 
industry ;  yet  even  here,  in  the  various  operations  subsidiary 
to  the  transportation  and  exchange  of  goods,  there  is  a  consid- 
erable demand  for  this  lowest  kind  of  exertion.  We  say  a 
"  demand  "  for  it,  because  the  fact  that  laborers  of  this  class 
expect  only  the  lowest  rate  of  wages,  causes  them  to  be  sought 
for  in  preference  to  all  others,  when  the  work  is  such  that  they 
can  perform  it. 

From  various  causes,  there  is  an  abundance  of  this  kind  of 
labor  in  the  market  in  almost  every  country.  The  stinted 
bounty  of  nature,  casualties  that  lessen  the  average  capacity, 
vice,  ignorance,  and  extreme  poverty,  are  among  the  causes 
which  here  keep  the  supply  up  to  the  demand,  and,  in  nearly 
all  cases,  make  it  go  greatly  beyond  the  demand.  The  only 
evil  to  be  dreaded  is  a  superfluity  of  this  class  of  laborers,  —  a 
superfluity  which  sometimes,  as  at  present  in  Great  Britain 
and  Ireland,  exists  to  a  frightful  extent.  Popular  education, 
as  that  phrase  is  commonly  understood,  meaning  the  general 
cultivation  of  the  intellect,  though  unquestionably  a  very  pow- 
erful agent  for  lessening  this  evil,  is  not  the  only  preservative 
against  it.  A  man  wholly  uneducated  in  the  common  mean- 
ing of  the  word,  that  is,  unable  either  to  write  or  read,  may  yet 
become  a  very  expert  workman  in  the  finest  and  most  difficult 
kinds  of  manufacture.  On  the  other  hand,  men  may  be  quite 
well  taught,  and  still  be  unable  to  get  any  but  the  rudest  sort 
of  work  to  do,  or  to  obtain  employment  more  than  half  the 
time  even  at  that.  The  Scotch,  for  instance,  are  a  very  well 
educated  people ;  the  standard  of  instruction  among  them,  for 
all  classes,  is  probably  quite  as  high  as  it  is  here  in  New  Eng- 
land. Yet  there  is  as  large  a  surplus  of  rude  labor  in  Scot- 
land, in  proportion  to  its  population,  as  in  England,  —  proba- 
bly larger. 


84 


THE  ENCOURAGEMENT  OF  MANUFACTURES  : 


The  loss  which  a  country  suffers  by  having  a  large  portion 
of  its  people  condemned  to  this  rude  labor,  when  most  of  them 
are  capable,  or  may  be  made  capable,  of  much  finer  work  or 
more  effective  industry,  is  very  great ;  so  great,  indeed,  that  I 
doubt  whether  any  other  single  cause  of  national  poverty  can 
equal  it.  Men  are  differently  constituted  by  nature,  or  by 
those  circumstances  which,  in  early  youth,  determine  the  bent 
of  their  inclinations  and  the  applicability  of  their  powers  to 
one  task  rather  than  another.  The  labor  of  a  people  is  effect- 
ually used  only  when  the  field  of  employment  in  the  country 
offers  scope  for  every  variety  of  taste  and  talent,  and  when  no 
formidable  or  insuperable  obstacles  prevent  any  individual  from 
finding  out  and  performing  just  that  task  which  God  and  na- 
ture appointed  him  to  do.  If  agriculture  alone  is  pursued,  all 
the  mechanical  skill  of  the  people  is  wasted,  —  all  their  fitness 
for  commerce,  all  their  enterprise  in  trade,  is  wasted.  If  four 
millions  are  obliged  to  be  rude  laborers,  when  three  millions  of 
them  might  be  skilled  artisans,  the  labor  of  one  of  the  latter 
being  supposed  to  be  equal  in  value  to  that  of  at  least  three  of 
the  former,  then  the  value  actually  created  is  to  the  value 
which  might  be  created  as  four  is  to  ten  ;  in  other  words,  the 
yearly  product  of  the  national  industry  might  be  two  and  a 
half  times  greater  than  it  is ;  and  the  yearly  unproductive  con- 
sumption need  not  be  at  all  increased,  since,  in  either  case, 
there  would  be  four  millions  of  people  to  be  supplied  with 
food,  clothing,  and  shelter.  Of  course,  —  and  here  comes  the 
application  of  the  principle  to  present  circumstances,  —  the 
country  could  afford  to  pay  a  higher  price  for  their  manufac- 
tures, for  the  sake  of  having  the  articles  manufactured  at  home. 
They  could  afford  to  spend  more,  for  they  would  have  more  to 
spend. 

For  illustration,  we  will  take  the  two  extreme  cases  of  Ire- 
land and  Massachusetts.  To  avoid  burdening  the  memory 
with  statistics,  we  shall  employ  the  nearest  round  numbers. 
The  population  of  Ireland,  in  1851,  was  about  6|  millions ; 
that  of  Massachusetts,  in  1850,  was  about  one  million.  Ac- 
cording to  the  Irish  census  of  1841,  which  was  taken  with  ex- 
traordinary pains  and  minuteness,  the  whole  number  of  fami- 
lies in  Ireland  was  one  million  and  a  half,  of  whom  one  million, 
or  just  two  thirds  of  the  whole,  were  engaged  in  agriculture  ; 


THE  CONCENTRATION  OF  THE  PEOPLE.  85 

and  only  three  hundred  and  fifty  thousand  families,  or  a  little 
less  than  one  fourth  of  the  whole,  were  employed  in  manufac- 
tures and  trade.  It  is  obvious  that  the  agricultural  population 
was  excessive,  for  in  England,  where  agriculture  is  carried  to 
greater  perfection  than  in  any  other  country  on  the  face  of  the 
globe,  there  was  but  one  agricultural  family  to  every  thirty-four 
acres  of  arable  land,  while  in  Ireland  there  was  one  such  fam- 
ily to  every  fourteen  acres.  In  Massachusetts,  according  to  the 
census  of  1850,  out  of  a  free  male  population,  over  fifteen  years 
of  age,  amounting  to  295,300,  about  194,600,  or  nearly  66  per 
cent,  were  employed  in  commerce,  manufactures,  and  the  me- 
chanic arts,  mining,  and  navigation,  and  only  84,700,  or  some- 
what over  28  per  cent,  in  agriculture  and  its  subsidiary  em- 
ployments.* The  proportions  in  Ireland,  as  we  have  seen,  were 
about  23  per  cent  in  commerce  and  manufactures,  and  66  per 
cent  in  agriculture. 

Now  contrast  the  condition  of  the  people  in  the  two  coun- 
tries. The  paupers  in  Massachusetts  are  about  one  in  fifty  of 
the  whole  population ;  but  as  nearly  half  of  these  are  recent 
English  or  Irish  immigrants,  principally  Irish,  the  real  propor- 
tion is  about  one  in  a  hundred.  In  Ireland,  according  to  the 
Returns  of  the  Poor  Law  Commissioners,  the  whole  number 
of  paupers  who  received  relief  in  the  workhouses  during  the 
year  ending  September  29th,  1851,  added  to  the  number  of 
out-door  poor  who  were  assisted  at  the  public  charge,  was 
755,357,  or  nearly  twelve  per  cent  of  the  total  population. 
Three  years  before,  the  number  of  paupers  was  at  least  thrice 
as  great.  The  cost  of  relieving  these  755,357  paupers  was 
nearly  six  millions  of  dollars.  It  should  be  remembered,  also, 
that  during  the  five  years  preceding  September,  1851,  the  emi- 
gration from  Ireland  averaged  at  least  200,000  persons  a  year, 

*  The  numbers  actually  returned  by  the  census  are,  146,002,  or  49  per  cent,  in 
"commerce,  trade,  manufactures,  mechanic  arts,  and  mining";  55,699,  or  19  per 
cent,  in  "agriculture,"  57,942,  or  20  per  cent,  in  "labor  not  agricultural,"  and 
19,598,  or  7  per  cent,  in  "  sea  and  river  navigation."  As  navigation  is  subsidiary 
to  commerce,  I  have  added  the  number  of  persons  engaged  in  it  to  those  returned 
under  the  head  of  commerce ;  and  have  also  ranked  under  the  same  head  28,971 
persons,  or  one  half  of  those  enumerated  as  engaged  in  "  labor  not  agricultural." 
As  the  compiler  of  the  census  remarks  that,  although  laborers  were  regarded  as  "  non- 
agricultural,"  many  of  them  are  probably  farm  laborers,  I  have  added  the  other  half 
of  their  number  to  the  agricultural  population. 
8 


86         THE  ENCOURAGEMENT  OF  MANUFACTURES  : 

most  of  the  emigrants  being  of  that  class  who  would  probably 
have  become  paupers  had  they  remained  at  home. 

Can  we,  then,  attribute  this  great,  this  frightful  difference,  to 
the  unequal  distribution  of  the  bounty  of  Providence,  —  to  the 
fact  that  the  Irish  are  crowded  together  on  land  not  broad  or 
fertile  enough  to  supply  them  all  with  food,  while  we  in  Mas- 
sachusetts are  fattening  on  the  spontaneous  riches  of  the  earth  ? 
According  to  the  estimate  which  we  have  already  formed  of  the 
effect  upon  national  well-being  of  what  are  termed  "  natural  ad- 
vantages," this  is  not  very  likely  to  be  the  case  ;  but  let  us  look 
at  the  facts.  Here,  where  our  only  natural  exports  are  ice  and 
granite,  it  is  notorious  that  we  do  not  raise  food  enough  for 
our  own  consumption.  We  import  nearly  all  our  wheat,  the 
chief  article  of  our  bread-stuffs,  and  also  buy  from  the  other 
States  large  droves  of  cattle.  But  Ireland  raises  more  food 
than  is  necessary  for  her  sustenance,  and  exports  annually  vast 
quantities  of  provision  to  England.  Her  export  of  the  cereal 
grains,  chiefly  oats,  and  of  other  edible  products  of  the  soil,  in- 
creased, from  less  than  seven  millions  of  bushels  in  1817,  to 
twenty-six  millions  of  bushels  in  1845.  ^Even  in  1847,  the 
year  of  famine  in  Ireland,  nearly  eight  millions  of  bushels  of 
grain  and  meal  were  exported;  and  in  the  following  year, 
which  was  one  of  great  scarcity,  these  exports  rose  again  to 
sixteen  millions.  The  exportation  of  beef,  pork,  butter,  and 
other  animal  products,  has  also  gone  on  increasing,  though  in 
a  lower  ratio.  In  each  of  the  four  years  from  1846  to  1850, 
about  200,000  horned  cattle  and  250,000  sheep  and  lambs 
were  shipped  from  Ireland  to  Great  Britain.  It  is  certain, 
then,  that  the  penuriousness  of  nature  is  not  the  source  of  the 
difficulty ;  it  is  not  fertile  land  which  is  wanting,  but  wealth ; 
and  the  people  do  not  produce  that,  because  the  field  of  em- 
ployment is  so  limited  that  very  little  except  rude  labor  is  pos- 
sible. There  is  no  opening  for  the  exertion  of  skill  and  enter- 
prise, and  whatever  natural  qualifications  the  people  may 
possess  in  these  respects  cannot  be  developed. 

Nearly  the  whole  native  population  of  Massachusetts  being 
occupied  with  tasks  that  require  skill,  care,  and  ingenuity,  we 
depend  for  a  supply  of  rude  labor  almost  exclusively  upon  im- 
migrant foreigners.  These  do  all  the  coarse  work  in  building 
our  railways  and  canals,  and  in  the  several  other  occupations 


THE  CONCENTRATION  OF  THE  PEOPLE.  87 

that  require  nothing  but  muscular  strength.  The  rude  labor, 
to  which  alone  they  have  been  accustomed,  has  so  incapaci- 
tated them  for  higher  tasks,  that  it  is  now  an  established  prin- 
ciple in  our  large  manufactories,  that  the  machines  cannot 
profitably  be  worked  if  more  than  one  third  of  the  operatives 
be  foreigners.  It  is  not  only  more  economical  to  pay  the 
higher  wages  required  by  native  workmen ;  but  foreigners  gen- 
erally, and  the  Irish  in  particular,  cannot  be  employed  at  all, 
except  in  that  small  proportion  to  the  whole  number  of  hands 
which  will  make  it  possible  to  restrict  them  to  the  lower  or  less 
difficult  tasks.  Because  our  own  people  are  so  generally 
trained  to  the  finer  and  more  productive  branches  of  industry, 
new  expedients  are  constantly  invented  by  them  for  perform- 
ing the  drudgery  by  machines.  The  locomotive  steam  exca- 
vators, that  are  often  employed  on  the  line  of  a  proposed  rail- 
road, and  the  various  contrivances  that  have  been  patented  for 
cutting  and  hoisting  ice  on  our  ponds,  are  instances  of  this 
sort  of  labor-saving  machinery.  The  superfluity  and  conse- 
quent cheapness  of  rude  labor  in  foreign  countries  render  these 
expedients  unnecessary,  and  the  work  is  profitably  done  by 
hand. 

Consider  the  rapid  growth  of  capital  in  this  State,  which  is 
the  result  of  this  most  effective  application  of  its  industry,  and 
also  the  immense  unproductive  consumption  of  the  people, — 
their  ample  supply,  not  only  of  the  necessaries,  but  of  the 
comforts  and  luxuries  of  Me  ;  and  contrast  these  with  the  pov- 
erty and  destitution  of  Ireland.  The  productive  part  of  the 
consumption  leads  to  the  increase  of  the  national  wealth ;  the 
unproductive  part  is  an  index  of  the  general  well-being  of  the 
community.  In  Ireland,  the  people  are  literally  too  poor  to 
create  a  demand  for  anything  but  potatoes ;  and  the  country 
therefore  affords  hardly  any  market  either  for  British  or  Irish 
manufactures.  There  is  but  little  opening  there  for  the  me- 
chanic arts,  or  for  the  many  small  occupations  which  are  cre- 
ated by  a  due  regard  for  the  comforts  and  conveniences  of  life. 
The  field  of  employment  for  skilled  industry  is  consequently 
limited  almost  to  a  span,  and  the  bulk  of  the  people  are  driven 
back  upon  rude  labor  in  agriculture,  —  to  ditching,  cutting  turf, 
and  planting  potatoes ;  the  meagre  returns  from  such  toil  being 
hardly  sufficient  to  keep  them  from  starvation.  The  United 


88         THE  ENCOURAGEMENT  OF  MANUFACTURES  : 

States,  on  the  other  hand,  afford  a  better  market  for  manufac- 
tured goods  than  any  other  country  of  equal  population  on  the 
globe ;  because  the  universal  prosperity  of  the  community  en- 
ables them  to  consume  more.  If  the  relation  of  cause  and 
effect  in  this  proposition  be  reversed,  so  as  to  say  that  the  peo- 
ple consume  more  because  they  produce  more,  it  will  amount 
to  the  same  thing,  and  be  equally  favorable  for  the  purposes  of 
the  argument  More  wealth  is  created,  more  is  consumed, 
and  the  amount  of  enjoyment  is  thereby  increased. 

Unquestionably,  we  pay  a  somewhat  higher  price  for  our 
manufactured  goods,  as  a  return  for  the  privilege  of  manufac- 
turing them  at  home,  and  thereby  having  a  field  of  employ- 
ment for  our  skilled  labor.  But  what  does  this  tax  amount  to  ? 
The  average  duty  levied  by  the  present  tariff  on  our  chief  arti- 
cles of  import  is  less  than  thirty  per  cent.  But  as  one  of  the 
chief  objects  of  a  protective  duty  is  to  guard  against  the  inju- 
rious fluctuation  of  prices  in  foreign  markets,  whereby  we 
might  be  deluged  with  imported  goods  one  year,  and  be  very 
scantily  supplied  with  them  the  next,  the  duty  is  fixed  with  ref- 
erence to  the  lowest  price  at  which  they  are  ever  sold  abroad, 
and  not  with  reference  to  the  average  price.  The  effect  of  a 
protective  duty  of  thirty  per  cent,  then,  at  the  utmost,  is  to 
raise  the  average  price  fifteen  per  cent. 

Whenever  we  have  occasion  for  any  of  these  small  articles, 
we  are  obliged  to  spend  a  dollar  for  what  might  be  obtained 
for  eighty-five  cents,  if  we  would  buy  of  foreigners ;  that  is,  we 
might  save  this  fifteen  cents,  if  we  were  willing  to  give  up  all 
our  home  manufactures,  all  opportunity  for  earning  high  wages 
by  the  exhibition  of  skill  and  ingenuity,  and  to  confine  the 
whole  people  to  the  comparatively  rude  pursuits  of  agriculture, 
thereby  overstocking  the  market  with  food,  and  reducing  the 
gains  of  farmers  all  over  the  country.  Ireland  has  acted  upon 
this  rule,  laid  down  by  most  political  economists,  —  always  to 
buy  in  the  cheapest  market,  whatever  may  be  the  effect  upon 
domestic  enterprise.  Grain  and  other  provision  can  be  raised 
most  cheaply  in  Ireland,  owing  to  the  low  rate  of  wages  there ; 
manufactures  can  be  produced  to  best  advantage  in  England, 
owing  to  the  abundance  of  English  capital.  Ireland,  therefore, 
raises  food  to  buy  English  manufactures  with  ;  and  the  present 
condition  of  the  Irish  people  is  the  consequence.  They  have 


THE  CONCENTRATION  OF  THE  PEOPLE.  89 

the  advantage,  it  is  true,  of  the  offer  of  the  manufactured  goods 
at  prices  fifteen  per  cent  less  than  what  they  command  in 
America; — an  advantage  which  would  be  more  sensibly  felt, 
if  the  Irish  were  not  too  poor  to  purchase  them  at  any  price. 

The  proposition,  I  think,  can  be  laid  down  as  a  general 
one,  that  a  country,  the  population  of  which  is  chiefly  or  alto- 
gether devoted  to  agriculture,  cannot  become  wealthy,  what- 
ever may  be  the  fertility  of  its  soil  or  the  favorableness  of  its 
situation.  Of  course,  its  inhabitants  must  buy  manufactures 
with  food ;  that  is,  they  must  exchange  the  products  of  rude 
labor  for  the  products  of  skilled  labor;  that  is,  again,  they 
must  give  the  labor  of  three  persons  for  the  labor  of  one  person. 
The  general  principle  of  economical  science  is,  to  cause  the  in- 
dustry of  a  country  to  take  that  direction  in  which  it  can  be 
applied  to  the  greatest  advantage.  Now  the  fertility  of  the 
soil  is  one  advantage,  and  the  capacity  of  the  people  for  the 
higher  departments  of  labor,  their  skill  and  enterprise,  is  an- 
other. There  is  no  reason  for  allowing  either  of  these  advan- 
tages to  remain  latent  or  unworked ;  and  in  choosing  between 
them,  we  are  to  be  decided  by  their  comparative  amount  and 
importance.  Fortunate  as  this  country  is  in  the  extent  of  its 
territory  and  the  richness  of  its  soil,  this  advantage  is  as  noth- 
ing, —  nay,  it  would  turn  out  to  our  positive  detriment,  —  if, 
in  consideration  of«it,  we  should  sacrifice  the  talents  and  the 
energies  of  our  people,  —  if  we  should  doom  our  whole  popu- 
lation to  the  rude  labor  of  turning  up  the  earth,  for  the  sake  of 
the  trifling  advantage  of  purchasing  our  manufactured  goods 
at  a  little  lower  price. 

Even  Adam  Smith  remarks,*  that  "  A  small  quantity  of 
manufactured  produce  purchases  a  great  quantity  of  rude  prod- 
uce. A  trading  and  manufacturing  country,  therefore,  natu- 
rally purchases,  with  a  small  part  of  its  manufactured  produce, 
a  great  part  of  the  rude  produce  of  other  countries ;  while,  on 
the  contrary,  a  country  without  trade  and  manufactures  is  gen- 
erally obliged  to  purchase,  at  the  expense  of  a  great  part  of  its 
rude  produce,  a  very  small  part  of  the  manufactured  produce 
of  other  countries.  The  one  exports  what  can  subsist  and  ac- 
commodate but  a  very  few,  and  imports  the  subsistence  and 


*  Wealth  of  Nations,  Book  IV.  Chap.  IX. 
8* 


90         THE  ENCOURAGEMENT  OF  MANUFACTURES  I 

accommodation  of  a  great  number.  The  other  exports  the  ac- 
commodation and  subsistence  of  a  great  number,  and  imports 
that  of  a  very  few  only.  The  inhabitants  of  the  one  must  al- 
ways enjoy  a  much  greater  quantity  of  subsistence  than  what 
their  own  lands,  in  the  actual  state  of  their  cultivation,  could 
afford.  The  inhabitants  of  the  other  must  always  enjoy  a 
V  much  smaller  quantity." 

1>  One  mode  in  which  the  encouragement  of  skilled  labor, 
leading  to  the  interfusion  of  manufactures  and  commerce  with 
agriculture,  favors  the  increase  of  national  capital,  is,  by  con- 
centrating the  population  in  cities  and  towns.  Agriculture 
is  necessarily  diffusive  in  its  effects ;  the  laborers  must  be  dis- 
tributed over  the  whole  face  of  the  territory  which  they  culti- 
vate. A  few  large  cities  spring  up  at  great  distances  from 
each  other,  as  an  outlet  for  the  commerce  created  by  the  ex- 
change of  the  surplus  agricultural  products  for  manufactured 
goods  and  other  necessaries  brought  from  abroad.  The  great 
agricultural  districts  of  Continental  Europe,  the  wheat-plains 
of  Poland  and  Southern  Russia,  find  an  outlet  at  the  cities  of 
Dantzic  and  Odessa;  and  we  may  remark  in  passing,  that 
the  poverty  and  general  low  condition  of  the  inhabitants  of 
these  districts  show  the  effects  of  confining  a  whole  population 
to  the  rude  labor  of  tilling  the  ground.  It  may  be,  that,  from 
their  low  capacity,  and  their  want  of  education  and  general 
intelligence,  they  are  incapable  of  anything  better.  If  so,  the 
fact  only  strengthens  our  argument ;  wherever  the  capacity  ex- 
ists, if  it  be  not  developed,  if  a  field  of  employment  be  not 
offered  to  it,  the  same  results  must  follow.  Manufactures  and 
commerce,  on  the  other  hand,  requiring  a  great  division  of  la- 
bor, and  also  that  the  participators  in  the  work  should  be  near 
each  other,  necessarily  create  a  civic  population.  They  will 
only  flourish  in  cities  and  towns,  and  they  are  the  only  means 
of  creating  cities  and  towns. 

This  principle,  perhaps  sufficiently  obvious  in  itself,  is  strik- 
ingly illustrated  by  the  differences  among  the  States  of  this 
Union.  Our  Southern  and  Southwestern  States  are  almost  ex- 
clusively agricultural ;  and  south  of  the  northern  boundary  of 
Virginia  and  Kentucky,  there  is  but  one  city,  New  Orleans,  of 
the  first  class,  numbering  over  100,000  inhabitants,  and  but 
two  cities  of  the  second  class,  Charleston  and  Louisville,  each 


THE  CONCENTRATION  OF  THE  PEOPLE.  91 

numbering  over  40,000.  These  cities,  of  course,  have  sprung 
up  from  the  same  causes  which  sustain  Dantzic  and  Odessa ; 
they  afford  an  outlet  for  the  surplus  produce  of  the  vast  agri- 
cultural districts  which  depend  upon  them ;  manufactures  have 
hardly  contributed  at  all  to  their  growth.  If  we  reckon  as  civic 
population  those  only  who  dwell  in  cities  or  towns  having  at 
least  11,000  inhabitants  each,  Massachusetts  and  Rhode  Isl- 
and, two  manufacturing  States,  with  an  aggregate  population 
of  only  1,142,059,  have  a  greater  civic  population  than  these  ten 
agricultural  States,  who  number  in  the  aggregate  over  eight  mil- 
lions. The  civic  population  of  the  two  manufacturing  States 
is  nearly  one  third  of  their  whole  number ;  that  of  the  ten  ag- 
ricultural States  is  about  one  twenty-fifth  of  the  whole.  The 
cities  in  Massachusetts  and  Rhode  Island  have  been  created 
almost  entirely  by  manufacturing  enterprise,  these  States  not 
being  remarkable  for  surplus  agricultural  produce.  Wherever 
there  is  a  considerable  faU  of  water,  affording  power  to  move 
machinery,  there  a  new  city  springs  up,  though  the  soil  in  the 
neighborhood  should  be  as  barren  as  the  desert  of  Sahara.  But, 
under  the  demand  for  agricultural  produce  created  by  that  city, 
the  dry  sand  and  the  hard  rock  are  converted  into  gardens 
of  fruit  and  vegetables ;  while  the  plain  of  Eastern  Virginia, 
once  almost  unsurpassed  for  fertility,  its  powers  being  now  ex- 
hausted, is  relapsing  in  part  into  its  primitive  wild  condition* 

Cities  and  towns  are  the  great  agents  and  tokens  of  the  in- 
crease of  national  opulence,  and  the  progress  of  civilization. 
The  revival  of  effective  industry,  which  preceded,  and  in  part 
caused,  the  revival  of  learning  in  Europe,  took  place  through 
the  agency  of  the  free  towns  and  great  trading  cities,  which 
sprang  up  most  numerously  in  Germany  and  Italy,  where  they 
afforded  a  refuge  for  the  arts  and  the  pursuits  of  peace.  Their 
establishment  was  the  first  effective  blow  given  to  the  feudal 
institutions  of  the  Continent.  Commerce  and  manufactures, 
to  which  their  walls  afforded  protection  against  the  chances  of 
war  and  the  rapacity  of  the  warlike  nobles,  "  gradually  intro- 
duced order  and  good  government,  and  with  them  the  liberty 
and  security  of  individuals,  among  the  inhabitants  of  the  coun- 
try, who  had  before  lived  almost  in  a  continual  state  of  war 
with  their  neighbors,  and  of  servile  dependency  upon  then-  su- 
periors. By  affording  a  great  and  ready  market  for  the  rude 


y<<5  THE    ENCOURAGEMENT    OF    MANUFACTURES  : 

produce  of  the  country,  they  gave  encouragement  to  its  culti- 
vation and  further  improvement."  The  word  civilization  itself, 
as  if  to  indicate  the  origin  and  home  of  the  thing,  is  derived 
from  civis,  the  inhabitant  of  a  city.  Sismondi  attributes  the 
greater  humanizing  and  civilizing  influence  of  the  colonies 
of  the  ancients  over  those  of  the  moderns  to  the  fact  that  the 
former  founded  cities,  while  the  latter  spread  themselves  over 
much  land.  In  the  town,  man  is  in  the  presence  of  man,  not  in 
solitude,  abandoned  to  himself  and  his  passions.  The  history 
of  the  colonization  of  the  borders  of  the  Mediterranean,  he 
says,  might  also  be  called  the  history  of  the  civilization  of  the 
human  race. 

The  Egyptians,  the  Phoenicians,  the  Greeks,  and  the  Ro- 
mans successively  formed  colonies  upon  the  same  general  plan. 
Each  of  these  nations  became  in  succession  the  leaders,  the 
masters,  of  the  civilized  world,  in  refinement,  learning,  and  the 
arts  ;  and  the  colonies  which  they  established  were  the  means 
of  diffusing  these  blessings  among  the  rude  tribes  within  whose 
territories  the  new  settlements  were  formed.  When  the  mother 
country  became  too  populous,  when  the  inhabitants  of  its  wall- 
inclosed  cities  became  straitened  for  room,  detachments  of 
them  were  sent  out  to  found  new  homes  for  themselves  on  the 
coasts  of  other  lands.  The  colony  was  to  take  care  of  itself, 
to  be  independent  of  the  mother  country,  from  the  outset 
Hence,  to  protect  themselves  against  the  savage  tribes  among 
whom  they  came  to  dwell,  they  were  obliged,  as  the  first  step, 
to  build  a  city  and  encircle  it  with  fortifications.  Within  its 
walls  they  all  slept ;  and  they  did  not  wander  so  far  from  its 
precincts  during  the  daytime,  but  that  they  could  at  any  hour 
hear  the  trumpet-call,  which,  like  the  alarm-bell  of  modern 
times,  might  summon  them  back  to  the  defence  of  the  walls. 
Hence  they  cultivated  only  a  narrow  territory,  lying  within 
sight  of,  or  at  a  short  distance  from,  the  city ;  and  to  obtain 
food  from  this  restricted  space  for  their  whole  number,  they 
were  obliged  to  exhaust  all  the  arts  of  cultivation  upon  it ;  it 
was  tilled,  and  it  bloomed,  like  a  garden.  For  greater  secu- 
rity, a  portion  of  it  was  generally  inclosed  within  the  fortifica- 
tions. This  pomasrium,  or  cultivated  space  under  the  walls, 
was  usually  divided  into  small  strips,  and  allotted  to  the  sev- 
eral heads  of  families  among  the  citizens.  A  portion  of  the 


THE  CONCENTRATION  OF  THE  PEOPLE.  93 

colonists  devoted  themselves  to  tillage,  and  raised  food  enough, 
or  nearly  enough,  for  the  whole  city.  A  larger  portion  within 
the  walls  applied  themselves  to  the  mechanic  arts  and  to  com- 
merce, exchanging  their  manufactured  goods  for  food,  either 
with  their  own  agricultural  citizens,  or  with  the  native  inhabit- 
ants of  the  soil,  when  they  could  open  peaceful  intercourse 
with  them,  or  with  the  denizens  of  other  shores,  perhaps  of  the 
mother  country,  to  which  they  sent  their  ships.  As  they  need- 
ed only  a  narrow  strip  of  territory,  which  they  often  obtained 
by  fair  purchase  from  the  aborigines,  the  hostility  of  the  latter 
was  not  excited ;  and  the  mutual  benefits  of  trade  being  soon 
felt,  the  natives  came  to  regard  the  colonists  as  their  benefac- 
tors and  best  friends.  A  knowledge  of  the  arts,  a  taste  for  the 
comforts  and  luxuries  of  life,  learning  and  religion,  were  thus 
diffused  among  them ;  and  in  their  simplicity  and  gratitude, 
they  often  reverenced  the  authors  of  their  civilization  as  super- 
human beings,  and  paid  them  divine  honors.  Many,  if  not 
most,  of  the  gods  and  goddesses  of  ancient  mythology  were 
originally  only  the  founders  of  art-bringing,  knowledge-and-re- 
ligion-diffusing  colonies,  whose  beneficent  influence,  handed 
down  to  grateful  remembrance  by  tradition,  —  by  the  spoken, 
not  the  written  word,  —  really  seemed  to  admiring  posterity 
divine.  The  colony,  the  city,  was  opulent  and  refined  from 
the  beginning ;  founded  by  the  most  enterprising  citizens  of 
the  mother  country,  who  brought  their  wealth,  their  cultivated 
tastes,  and  their  industrious  and  adventurous  habits  along  with 
them,  it  became  almost  at  once  a  rival  of  the  parent  city  in 
learning,  industry,  and  the  arts.  Temples  and  theatres  were 
built ;  the  drama  flourished ;  schools  of  eloquence  were  estab- 
lished ;  manufactures  of  costly  and  elegant  fabrics  were  begun ; 
and  commerce  started  into  life  with  all  the  vigor  of  youth  and 
the  large  resources  of  manhood. 

Brief  as  this  sketch  is,  the  classical  reader  will  recognize  in 
it,  I  think,  the  principal  features  of  those  colonies  which  the 
Phoenicians  established  along  the  northern  shore  of  Africa,  the 
Greeks  along  the  coasts  of  Asia  Minor,  Sicily,  and  Magna 
Graecia  or  Southern  Italy,  and  the  Romans  in  Gaul  and  Spain. 
Carthage,  the  great  commercial  and  manufacturing  city  of  an- 
cient times,  the  rival  of  Rome,  may  be  taken  in  its  history  as 
a  type  of  them  all ;  and  in  the  fanciful  picture  which,  many 


94        THE  ENCOURAGEMENT  OF  MANUFACTURES  : 

years  after  its  destruction,  the  Roman  poet  drew  of  its  sup- 
posed origin,  of  the  scene  which  it  presented  while  the  walls 
of  the  city  were  building,  we  recognize  what  was  the  idea,  even 
so  late  as  Virgil's  time,  of  the  mode  of  founding  a  colony.* 

Modern  colonies,  on  the  other  hand,  are,  from  the  outset,  de- 
pendencies of  the  mother  country,  to  which  they  constantly 
look  for  protection  and  support.  They  are  often  planted  by 
those  who  do  not  intend  to  reside  there  permanently,  but  sim- 
ply wish  to  gather  again  in  a  new  country  the  wealth  which 
they  have  dissipated  in  an  old  one,  and  then  to  return  to  their 
former  home  in  order  to  enjoy  it.  Thus  relieved  from  all  fear 
of  attack  from  the  aborigines,  their  first  care  is  to  get  posses- 
sion of  as  much  land  as  possible,  this  being  the  most  obvious 
and  plentiful  source  of  riches.  Individuals  or  joimVstock  com- 
panies obtain  grants  of  land  measured  by  the  league  ;  and  their 
rapacity  provokes  the  vengeance  of  the  natives,  at  the  same 
time  that  it  leads  to  their  own  isolation  and  defencelessness. 
The  territory  which  they  acquire  is  out  of  all  proportion  to 
their  wants,  their  physical  strength,  or  their  capital ;  they  culti- 
vate only  here  and  there  a  very  fertile  spot,  where  the  powers 
of  the  soil  are  soon  spent  by  a  succession  of  exhausting  crops ; 
and  in  the  careless  style  of  agriculture  to  which  they  become 
accustomed,  through  their  dependence  on  the  extent  and  natu- 
ral richness  of  their  land,  is  soon  lost  all  remembrance  of  the 

*  "  Conveniunt,  quibus  aut  odium  crudele  tyranni, 
Aut  metus  acer  erat ;  naves,  quae  forte  paratse, 
Corripiunt,  onerantque  auro  ;  portantur  avari 
Pygmalionis  opes  pelago :  dux  fcemina  facti. 
Devene're  locos,  ubi  nunc  ingentia  cernes 
Moenia,  surgentemque  novae  Carthaginis  arcem : 
Mercatique  solum,  facti  de  nomine  Byrsam, 
Taurino  quantum  possent  circumdare  tergo. 

Jamque  ascendebant  collem,  qui  plurimus  urbi 
Imminet,  adversasque  adspectat  desuper  arces. 
Miratur  molem  jEneas,  magalia  quondam ; 
Miratur  portas,  strepitumque,  et  strata  viarum. 
Instant  ardentes  Tyrii :  pars  ducere  muros, 
Molirique  arcem,  et  manibus  subvolvere  saxa; 
Pars  optare  locum  tecto,  et  concludere  sulco. 
Jura,  magistratusque  legunt,  sanctumque  senatum. 
Hie  portus  alii  effodiunt ;  hie  alta  theatris 
Fundamenta  locant  alii ;  immanesque  columnas 
Eupibus  excidunt.  scenis  decora  alta  futuris." 


THE  CONCENTRATION  OF  THE  PEOPLE.          95 

agricultural  art  and  science  which  they  brought  with  them  from 
their  old  home.  Widely  separated  from  each  other,  amply 
supplied  with  food  by  the  bounty  of  nature,  but  destitute  of  the 
manufactured  articles  on  which  depend  the  comforts  and  even 
the  decencies  of  life,  out  of  the  reach  of  the  law,  and  beyond 
the  sphere  of  education,  they  rapidly  approximate  the  condition 
of  the  savages  whom  they  have  just  dispossessed.  They  be- 
come "  squatters,"  "  bushmen,"  "  backwoodsmen,"  whose  only 
enjoyments  are  hunting  and  intoxication,  whose  only  school- 
room is  the  forest,  and  whose  sense  of  justice  is  manifested 
only  by  the  processes  of  Lynch  law.  They  are  doomed  to  the 
solitary,  violent,  brutal  existence,  which  destroys  all  true  civil- 
ization, all  sympathy  with  other  men,  though  it  increases 
strength  of  body,  adroitness,  courage,  and  the  spirit  of  adven- 
ture. The  want  of  local  attachments,  and  an  insatiable  thirst 
for  wandering  and  adventure,  are,  I  fear,  the  most  striking 
traits  in  the  character  of  the  whole  population  of  our  Missis- 
sippi valley.  Their  homes  even  in  that  fair  region  are  but 
homes  of  yesterday ;  they  had  only  pitched  their  camps  on  the 
banks  of  the  Ohio  and  the  Wabash,  while  on  their  way  to  the 
Sacramento  and  the  Columbia.  The  truant  disposition  which 
carried  them  over  the  Alleghanies,  hurries  them  onward  to 
the  Rocky  Mountains.  I  do  not  go  so  far  as  an  eminent 
thinker  of  our  own  day,  who  has  expressed  in  eloquent  lan- 
guage his  fears  lest  these  constant  migrations  should  lead  our 
countrymen  back  to  barbarism ;  but  it  is  certain  that  the  "  pi- 
oneers of  civilization,"  as  they  have  been  fondly  called,  leave 
laws,  education,  and  the  arts,  all  the  essential  elements  of  civ- 
ilization, behind  them.  They  may  be  the  means  of  partially 
civilizing  others,  but  they  are  in  great  danger  of  brutalizing 
themselves. 

Strangely  enough,  the  only  colony  of  modern  times  founded 
on  the  principles  which  governed  the  ancients  in  the  establish- 
ment of  their  colonies  is  one  commenced  by  a  set  of  half- 
crazed  fanatics  in  our  own  far-distant  territory  of  Utah  or  Des- 
eret.  Here,  as  well  as  at  their  former  place  of  settlement  in 
Illinois,  the  Mormons  appear  to  have  begun  their  colony  by 
founding  a  city,  within  or  near  which  their  whole  population 
is  to  be  collected,  so  that  the  mechanic  arts  and  all  branches 
of  manufacture  may  be  established  at  the  same  time  that  they 


96         THE  ENCOURAGEMENT  OF  MANUFACTURES: 

make  their  first  attempts  in  agriculture.  The  name  of  their 
present  chief  city  in  Deseret  is  New  Hierasalem,  and  it  is  sit- 
uated on  the  right  bank  of  the  Western  Jordan,  which  empties 
into  their  Dead  Sea.  I  borrow  the  following  account  of  it 
from  an  Historical  Discourse,  delivered  some  years  since,  by 
Thomas  L.  Kane. 

"  Its  houses  are  spread,  to  command  as  much  as  possible  the 
farms,  which  are  laid  out  in  wards  or  cantons,  with  a  common 
fence  to  each  ward.  The  farms  in  wheat  already  cover  a  space 
greater  than  the  District  of  Columbia,  over  all  of  which  they 
have  completed  the  canals  and  other  arrangements  for  bounti- 
ful irrigation,  after  the  manner  of  the  cultivators  of  the  East. 
The  houses  are  distributed  over  an  area  nearly  as  large  as  the 
city  of  New  York.  They  will  soon  have  completed  a  large 
common  storehouse  and  granary,  and  a  great-sized  public  bath- 
house. One  of  the  many  wonderful  thermal  springs  of  the 
valley,  a  white  sulphur  water  of  the  temperature  of  102°  Fah- 
renheit, with  a  head  of  *  the  thickness  of  a  man's  body,'  they 
have  already  brought  into  the  town  for  this  purpose." 

It  is  remarkable,  that  one  of  the  latest  improvements  or  dis- 
coveries in  economical  science,  Mr.  Wakefield's  theory  of  colo- 
nization, consists  in  the  recognition  of  the  fact,  that  the  ancient 
mode  of  planting  colonies  is  far  preferable  to  the  modern  one. 
Mr.  Wakefield  perceived  that  a  country  cannot  have  a  produc- 
tive agriculture  unless  it  has  a  large  town  population,  who  may 
supply  the  agriculturists  with  manufactured  articles,  while  the 
agriculturists  supply  them  with  food.  Both  parties  are  thus 
furnished  with  a  market  for  their  surplus  produce,  and  with  the 
articles  that  they  most  need  in  exchange  for  it.  He  showed 
that  the  modern  fashion  of  establishing  new  settlements, — 
"  setting  down  a  number  of  families  side  by  side,  each  on  its 
own  piece  of  land,  and  all  employing  themselves  in  exactly  the 
same  manner,  —  though,  under  favorable  circumstances,  it  may 
assure  to  those  families  a  rude  abundance  of  mere  necessaries, 
can  never  be  other  than  unfavorable  to  great  production  or 
rapid  growth."  The  situation  of  Oregon  hardly  ten  years  ago 
affords  a  striking  illustration  of  this  truth  ;  the  settlers,  for  want 
of  a  market,  were  obliged  to  feed  their  horses  with  the  finest 
wheat,  while  their  own  dwellings  were  nearly  destitute  of  all 
the  comforts  of  life.  Wakefield's  "  system  consists  of  ar- 


THE  CONCENTRATION  OF  THE  PEOPLE.  97 

rangements  for  securing  that  every  colony  shall  have,  from  the 
first,  a  town  population  bearing  due  proportion  to  its  agricul- 
tural, and  that  the  cultivators  of  the  soil  shall  not  be  so  widely 
scattered  as  to  be  deprived  by  distance  of  the  benefit  of  that 
town  population  as  a  market  for  their  produce."  When  land 
was  plenty  and  free  immigrants  scarce  in  New  Holland,  the  gov- 
ernment found  it  convenient  to  make  liberal  gifts  of  territory ; 
and  accordingly,  tracts  varying  in  size  from  10,000  to  50,000 
acres  were  granted  to  various  individuals.  I  borrow  from  the 
North  American  Review  a  brief  outline  of  the  system. 

Mr.  Wakefield  argued  thus :  —  "  The  welfare  of  any  com- 
munity depends  very  much  upon  such  a  division  of  labor  as 
shall  fill  every  trade,  profession,  and  employment  with  good 
men,  and  not  overload  any  of  them.  If  land  in  any  country  is 
so  cheap  that  all  are  able  to  become  landholders,  there  will  be 
no  laborers,  no  farm-hands,  or  mechanics ;  a  semi-barbarism 
will  follow ;  no  growth  in  wealth  or  civilization  will  take  place, 
and  the  country  will  be  stationary  or  retrograde.  If,  therefore, 
you  would  have  a  colony  progressive  and  civilized,  you  must 
put  your  lands  so  high  as  to  keep  a  proper  proportion  of  the 
inhabitants  in  the  labor-market  seeking  employment,  and  yet 
not  so  high  as  to  prevent  as  many  from  buying  real  estate  as 
can  use  it  to  advantage  with  the  help  of  such  laborers.  If, 
then,  England  wishes  Australia  to  grow  in  riches  and  good- 
ness, let  her  sell  the  lands  at  a  fixed  price,  never  taking  less, 
and  in  fixed  quantities,  never  selling  less ;  and  let  her  apply 
the  revenue  arising  from  these  sales  to  the  transportation  of 
free,  honest  laborers  to  the  points  where  they  are  needed.  In 
this  way,  the  labor-market  of  New  Holland  will  be  supplied ; 
the  expense  of  supplying  working  hands  will  be  paid  by  the 
lands  of  the  colony ;  no  more  land  will  be  taken  up  than  can 
be  worked  to  advantage ;  population  will  be  concentrated, 
wealth  will  accumulate,  and  knowledge  and  virtue  advance." 

Mr.  Wakefield's  theory  was  good,  but  a  practical  difficulty 
obstructed  its  application..  The  government,  adopting  his 
views,  put  their  lands  up  to  a  high  price ;  and  the  immigrants, 
consequently,  instead  of  purchasing  them,  or  of  remaining  as 
laborers  on  the  lands  purchased  by  others,  pushed  farther  into 
the  interior,  and  "  squatted  "  on  the  best  land  they  could  find, 
without  paying  anything.  In  those  vast  unsettled  regions, 
9 


98 


THE  ENCOURAGEMENT  OF  MANUFACTURES  : 


they  knew  very  well  that  they  were  out  of  reach  of  the  sheriff. 
Thus,  the  very  measures  adopted  for  concentrating  them,  and 
keeping  them  within  the  range  of  civilization  and  law,  led  to 
their  wider  dispersion  and  utter  lawlessness. 

It  is  curious  that  the  United  States  system  of  disposing  of 
the  public  lands,  adopted  in  all  its  essential  features  as  far  back 
as  1800,  has  worked  better  than  any  other  plan  which  has  yet 
been  devised.  The  land  is  carefully  divided  by  the  govern- 
ment surveys  into  townships  six  miles  square,  each  of  these 
being  subdivided  into  thirty-six  sections,  of  one  square  mile,  or 
640  acres,  each.  All  is  held  at  a  minimum  price  of  $  1.25  an 
acre ;  and  the  sales  are  made  at  public  auction,  as  rapidly  as 
the  progress  of  the  population  seems  to  require.  Lands  which 
will  not  bring  $  1.25  an  acre  at  the  public  sale,  are  still  held 
by  the  government  subject  to  entry  at  any  future  time,  at  pri- 
vate sale  and  at  the  minimum  price.  Any  person  can  select  a 
quarter,  or  even  an  eighth  section,  — 160  or  80  acres,  —  wher- 
ever he  can  find  one  surveyed  and  not  yet  sold,  and,  by  making 
a  record  of  his  intention  to  occupy  and  settle  it  himself,  he  can 
secure  what  is  called  the  "  preemption  right "  ;  —  a  right  which, 
partly  by  the  force  of  law  and  partly  by  custom,  amounts  to  a 
privilege  of  purchasing  that  land  at  the  minimum  price  of 
$  1.25  an  acre,  whenever  the  government  shall  think  proper  to 
seh1  it,  which  it  will  do  when  the  settlement  is  so  far  advanced 
as  to  render  it  probable  that  most  of  the  land  in  the  vicinity 
will  bring  that  price.  Thus  the  actual  settler  in  truth  obtains 
his  land  on  credit,  though  all  actual  sales  are  for  cash.  He 
has  credit  till  the  actual  sale  is  ordered ;  and  some  years  may 
intervene,  during  which  he  may  proceed  to  clear  and  cultivate 
his  land,  and  actually  obtain  enough  from  it  to  make  up  its 
price,  secure  that  no  one  will  overbid  him,  and  that  he  cannot 
be  obliged  to  pay  more  than  $  1.25  an  acre  for  it,  however 
great  may  be  his  improvements.  Five  per  cent  is  reserved 
from  the  proceeds  of  the  sales,  to  be  expended,  three  fifths 
for  making  roads  to  the  newly  settled  territory,  and  two  fifths 
for  the  support  of  seminaries  of  learning  therein. 

I  say  this  system  has  worked  well,  the  only  evil  experi- 
enced under  it  being,  that  speculators  will  sometimes  buy  up 
large  tracts  not  subject  to  preemption  right,  at  the  minimum 
government  price,  and  hold  them  for  an  indefinite  period,  hop- 


THE  CONCENTRATION  OF  THE  PEOPLE.  99 

ing  that,  as  the  population  gradually  close  up  and  concentrate 
around  them,  they  may  again  be  brought  into  market  at  a 
much  advanced  price.  While  thus  held,  they  remain  unoccu- 
pied, —  broad  patches  of  wilderness  among  the  settlements,  — 
obstructing  communication  between  the  surrounding  lands, 
and  barring  out  occupation  and  improvement.  But  there  is  a 
check  to  this  evil  in  the  fact,  that  such  lands  are  subject  to 
State  taxation,  though  they  are  tax-free  before  they  are  sold  by 
the  United  States ;  and  the  taxes  being  proportioned  to  the 
rise  in  value  of  the  property,  it  is  not  for  the  interest  of  the 
speculators  to  retain  the  land  a  long  time. 

But  the  inhabitants  of  the  Western  States  make  a  great 
mistake  when  they  clamor  for  a  reduction  of  the  minimum  price 
at  which  the  public  lands  are  now  held,  and  even  demand  that 
they  shall  be  offered,  in  limited  quantities,  as  a  free  gift  to  ac- 
tual settlers.  Their  object,  of  course,  in  making  these  demands, 
is  to  stimulate  the  spirit  of  emigration  to  the  West,  so  that  the 
population  there  may  more  speedily  become  dense,  and  the 
value  of  the  lands  already  settled  thus  be  enhanced.  The 
object  is  a  good  one ;  but  if  there  is  any  force  in  the  consid- 
erations now  adduced,  the  means  adopted  will  tend  rather  to 
check  than  promote  its  attainment.  It  is  surely  not  for  the 
interest  of  sparsely  settled  States,  like  Indiana,  Illinois,  and 
Michigan,  that  the  great  wave  of  emigration,  though  broad- 
ened and  deepened,  should  only  roll  over  them,  to  be  arrested 
at  last  by  the  farthest  limits  of  Iowa  and  Minnesota,  or  per- 
haps to  pass  much  farther,  and,  dashing  against  the  side  of  the 
Rocky  Mountains,  to  throw  its  spray  over  their  summits  into 
Oregon  and  California.  But  we  may  see  that  any  great  re- 
duction in  the  price  of  the  public  lands  will  surely  have  this 
effect.  The  most  eligible  land  in  the  three  States  first  men- 
tioned has  already  been  taken  up  by  individuals,  that  portion 
which  yet  remains  in  the  hands  of  government  being  either  less 
fertile,  or  more  distant  from  navigable  streams  and  other  means 
of  communication,  or  situated  in  a  less  salubrious  or  conven- 
ient region,  than  the  tracts  first  selected  for  purchase.  They 
have  long  been  in  the  market,  and  have  not  yet  found  a  buyer. 
Even  now,  most  of  the  emigrants  pass  by  them,  seeking  pub- 
lic lands  which  are  more  remote  from  their  former  homes, 
but  which,  in  every  other  respect,  are  superior  to  these  long- 


100        THE  ENCOURAGEMENT  OF  MANUFACTURES  : 

neglected  spots,  which  a  former  generation  of  immigrants  have 
avoided.  Any  general  reduction  of  the  government  price  could 
not  affect  this  relative  eligibility  of  the  nearer  and  more  distant 
lands.  Reduce  the  price  to  nothing,  —  give  away  the  lands  al- 
together, —  and  the  emigrant  will  still  pass  on,  pushed  forward 
by  the  emigrant's  fond  illusion,  that  the  farther  from  home,  the 
nearer  to  El  Dorado. 

Again,  what  is  most  needed  for  an  increase  of  the  prosperity 
of  the  West  —  of  that  portion  of  it,  at  least,  which  lies  on  this 
side  of  the  Mississippi  —  is,' not  that  the  lands  yet  in  the  pos- 
session of  government  should  become  private  property,  but 
that  the  population  should  be  concentrated  on  the  tracts  al- 
ready owned  by  individuals,  though  in  great  part  still  covered 
by  the  primeval  forest.  To  enhance  the  value  of  these  broad 
regions,  the  people  must  be  massed  together,  towns  and  cities 
must  be  established,  manufacturing  and  commercial  industry 
must  be  added  to  agricultural,  and  the  hut  of  the  backwoods- 
man must  give  place  to  the  well-furnished  abode  of  civilized 
and  enlightened  man.  It  would  be  an  ill  mode  of  enhancing 
the  value  of  the  farms  of  individuals,  to  offer  lands  in  their  im- 
mediate vicinity  at  a  nominal  price,  or  at  no  price  at  all.  The 
passion  for  owning  land,  which  converts  nearly  all  the  new 
settlers  in  our  Western  States  into  farmers,  however  ill  fitted 
for  such  occupation  by  their  previous  pursuits,  is  as  injurious 
to  agriculture  as  to  the  other  great  branches  of  industry.  The 
land  is  held  by  those  who,  from  defect  of  experience  or  want 
of  capital,  are  unable  to  develop  its  resources,  or  even  to  re- 
move the  forest  from  a  tithe  of  their  domains.  Corn,  fuel,  and 
meat  are  abundant,  because  prodigal  nature  affords  so  many 
facilities  for  the  production  of  them,  that  the  skill,  enterprise, 
and  knowledge  of  the  cultivator  are  little  needed,  and  are 
therefore  imperfectly  called  forth.  But  man  does  not  live  by 
bread  alone ;  and  when  this  alone  is  supplied,  almost  without 
labor  and  without  stint,  he  learns  to  do  without  many  of  the 
requisites  even  of  a  low  stage  of  civilization,  and  allows  the 
wants  of  his  higher  nature  to  remain  unsatisfied.  The  want 
of  a  market,  and  the  consequent  surplus  of  agricultural  produce, 
reduce  its  price  so  low,  that  many  families  find  it  needless  to 
raise  more  than  is  wanted  for  their  own  consumption. 

Again,  the  agriculturist  has  usually  but  one  or  two  staple 


THE  CONCENTRATION  OF  THE  PEOPLE.          101 

articles  —  perhaps  wheat  alone,  or  cotton  alone,  or  hemp  alone 
—  which  he  can  send  to  a  distance  and  sell  to  foreigners. 
These  alone  are  capable  of  transportation  to  a  distance.  But 
his  farm  cannot  usually  be  worked  to  advantage  unless  he  has 
a  market  in  his  immediate  neighborhood,  at  which  he  can  dis- 
pose of  his  green  crops,  market  vegetables,  butcher's  meat,  and 
other  articles,  which  must  be  sold  on  the  spot,  or  not  at  all. 
He  needs  this  neighboring  market,  also,  in  order  that  he  may 
purchase  conveniently,  and  at  the  lowest  price,  his  ploughs, 
spades,  carts,  and  other  farming  tools.  How  is  he  benefited, 
then,  though  we  were  to  grant  that  he  could  exchange  his 
wheat  for  cloth  to  better  advantage  by  trading  with  foreigners 
than  with  his  own  countrymen,  if  he  should  thereby  prevent  a 
manufacturing  market  town  from  springing  up  within  a  few 
miles  of  his  farm,  and  thus  altogether  lose  the  sale  of  many  of 
his  products,  and  be  compelled  to  purchase  his  tools  at  a  much 
higher  price,  or  be  put  to  great  inconvenience  in  obtaining 
them  on  any  terms  ? 

The  difficulty  is  felt,  though  its  true  cause  is  not  ascertained ; 
and  a  general  call  is  made  for  improving  the  means  of  commu- 
nication, so  as  to  give  access  to  distant  markets,  when  the  real 
want  is  that  of  a  market  near  home.  This  want  can  be  satis- 
fied only  by  bringing  the  people  together,  and  turning  one  half 
of  them  from  agricultural  to  manufacturing  and  mechanic  pur- 
suits. The  farmer  would  then  find  the  number  of  his  compet- 
itors diminished,  the  number  of  buyers  of  his  produce  in- 
creased, and  the  articles  needed  for  his  domestic  comfort 
cheapened  in  price  ;  because  most  of  them  would  be  manufac- 
tured in  his  immediate  neighborhood,  and  the  expense  of  trans- 
portation from  a  great  distance  would  be  subtracted  from  their 
cost.  As  it  is,  the  State  too  often  bankrupts  itself  in  the  gi- 
gantic enterprise  of  creating  a  system  of  railroads  and  canals, 
so  as  to  gain  access  to  a  manufacturing  and  commercial  popu- 
lation on  the  other  side  of  the  AUeghanies,  instead  of  laboring 
to  create  such  a  population  within  its  own  territory.  Indiana 
and  Illinois,  whose  united  territory  measures  about  ninety 
thousand  square  miles,  and  whose  inhabitants,  in  1850,  num- 
bered nearly  1,840,000,  had  but  one  city,  Chicago,  which  con- 
tained over  twenty-five  thousand  inhabitants,  and  but  one 
other,  Indianapolis,  having  over  eight  thousand.  Has  it  been 
9* 


102        THE  ENCOURAGEMENT  OF  MANUFACTURES: 

a  benefit  to  these  States,  that  the  cheapness  of  the  public 
lands  has  recently  borne  the  tide  of  emigration  onward  into 
Iowa  and  Minnesota,  instead  of  arresting  it  by  the  left  bank  of 
the  Mississippi  ?  In  our  opinion,  the  interests  of  these  States, 
and  of  the  emigrants  themselves,  would  be  most  effectually 
promoted  by  raising  the  price  of  the  public  lands  to  a  point 
which  would  really  keep  them  out  of  the  market  for  twenty 
years  to  come. 

It  is  remarked  by  an  intelligent  English  traveller  in  the  Unit- 
ed States,  Professor  Johnston,  that  "the  wheat-exporting  re- 
gions of  North  America  have  been  gradually  shifting  their 
locality,  and  retiring  inland  and  towards  the  West."  During 
the  middle  and  latter  part  of  the  last  century,  the  banks  of  the 
Hudson  and  the  Delaware,  and  the  flats  of  the  lower  St.  Law- 
rence, were  the  granary  of  America ;  the  western  part  of  New 
York,  and  especially  the  Genesee  country,  succeeded  these; 
then  came  Ohio  and  Canada  West ;  and  now,  a  large  por- 
tion of  the  surplus  wheat,  destined  for  exportation  to  Europe, 
is  drawn  from  Michigan,  Wisconsin,  Iowa,  and  even  Minne- 
sota. The  reasons  for  this  change  are  to  be  found,  partly  in 
the  migratory  disposition  of  the  people,  and  partly  in  their  irrr- 
perfect  and  exhausting  processes  of  agriculture.  The  influx  of 
population  into  the  neighborhood  causes  the  lands  to  rise  so 
rapidly  in  value,  that  the  deterioration  of  the  soil,  under  too 
constant  and  exhausting  crops,  becomes  comparatively  of  little 
moment.  Little  attention  is  therefore  paid  to  manuring  or  to 
establishing  a  due  rotation  of  crops.  Only  the  cheapest  sys- 
tem of  husbandry,  and  that  productive  of  the  quickest  returns, 
without  regard  to  the  effects  produced  by  such  tillage  in  the 
long  run  upon  the  inherent  fertility  of  the  ground,  can  enable 
the  farmer  to  maintain  competition  in  the  market  with  the  sup- 
plies poured  in  from  the  newly  opened  wheat-regions  farther 
west,  where  the  land  has  been  obtained  at  a  nominal  price, 
and  its  virgin  powers  seem  inexhaustible.  Tired  of  a  contest 
in  which  he  is  subject  to  a  constantly  increasing  disadvantage, 
the  New  York  farmer  at  last  sells  his  farm,  and  himself  mi- 
grates westward,  secure  of  obtaining  a  larger  and  more  fertile 
tract  of  land  at  a  low  cost.  But  in  Iowa  or  Wisconsin,  he 
soon  finds  that  he  has  only  bartered  one  disadvantage  for 
many.  The  cost  of  transporting  his  wheat  to  market  is  now 


THE  CONCENTRATION  OF  THE  PEOPLE.          103 

so  great,  that  the  price  on  the  ground  hardly  pays  the  expenses 
of  cultivation.  Labor  is  dear,  and  difficult  to  be  had  at  any 
price,  as  few  will  work  for  wages,  when  they  can  obtain  farms 
for  themselves  at  a  nominal  price  and  on  long  credit.  All  the 
evils  of  a  residence  on  the  frontier  make  themselves  felt,  and  a 
remedy  for  them  is  but  slowly  introduced,  as  the  means  of 
transportation  are  improved,  and  a  few  of  the  simpler  me- 
chanic arts  begin  to  be  practised  in  the  vicinity,  and  to  afford 
a  nucleus  for  the  settlement  of  a  town.  The  emigrants  of  a 
later  day  come  forward,  but,  instead  of  settling  down  and  com- 
pleting the  half-formed  village,  they  push  on  and  begin  rival 
settlements  farther  still  in  the  interior.  Then  competition  be- 
gins anew,  and  the  old  contest  with  lessening  prices  and  in- 
creasing expenses  of  cultivation  must  be  renewed.  The  great 
evil  in  the  Old  World,  especially  among  commercial  and  man- 
ufacturing nations,  arises  from  the  undue  concentration  of  the 
people  in  cities,  the  improvements  in  the  implements  and  pro- 
cesses of  agriculture  requiring  every  year  a  smaller  and  smaller 
number  of  laborers  for  the  tillage  of  the  fields.  Here  in  Amer- 
ica, the  difficulty  is  of  just  the  opposite  character ;  the  popula- 
tion is  thinly  dispersed,  cities  are  found  only  at  great  distances 
from  each  other,  and  the  processes  of  agriculture,  as  well  as  of 
most  of  the  arts  of  life,  tend  rather  to  deterioration  than  im- 
provement. As  Professor  Johnston  remarks,  "  were  the  popu- 
lation as  fond  of  their  homes,  and  as  stationary  in  numbers,  as 
in  the  central  regions  of  Northern  Europe,  —  as  quiescent  in 
character,  their  labor  as  small  in  money  value,  and  everywhere 
as  abundant,  and  their  institutions  as  repressive  of  exuberant 
energy,  —  this  primitive  condition  of  the  agricultural  practice 
would  be  both  less  felt  among  themselves,  and  a  matter  of  less 
observation  to  foreign  countries." 


104  THE    DESIRE    OF    ACCUMULATION  : 


CHAPTER    IX. 

THE  INCREASE  OF  CAPITAL  AS  AFFECTED  BY  THE  ADVANTAGES 
AND  REWARDS  WHICH  ARE  HELD  OUT  TO  THE  POSSESSORS  OF 
WEALTH. 

THE  next  stimulus  of  labor  and  frugality  which  we  have  to 
consider  is,  the  prospect  that  the  savings  when  made,  or  the 
capital  when  accumulated,  will  be  attended  with  a  high  rate 
of  profit,  and  by  a  large  proportion  of  physical  comfort,  social 
consideration,  and  political  influence. 

Necessity  is  the  first  and  most  effective  spur  to  exertion. 
We  have  wants  that  must  be  satisfied;  we  must  eat  and 
drink,  or  we  perish.  But  observe  that  labor  or  exertion  tends 
only  to  the  production  of  wealth,  and  that  our  natural  desires 
urge  us  to  consume  the  product  just  as  soon  as  it  is  created. 
For  the  accumulation  of  capital,  or  the  growth  of  national  opu- 
lence, we  must  be  willing  not  only  to  work,  but  to  save. 
Now,  the  greatest  of  all  encouragements  to  frugality  is  the 
sure  prospect  that  our  savings  will  contribute  largely  to  our 
comfort,  will  elevate  our  position  in  society,  and  add  to  the 
estimation  in  which  we  are  held  in  the  community,  and  to  the 
power  which  we  actually  wield.  No  man  will  practise  self- 
denial  for  nothing ;  take  away  the  chance  of  using  his  accu- 
mulations to  advantage,  and  every  one,  to  use  the  popular 
phrase,  will  spend  as  he  goes.  It  is  not  enough  to  prove  to  the 
laborer,  that  what  he  does  not  spend  to-day  he  will  be  able  to 
spend  to-morrow.  There  is  some  hazard,  at  least,  that  he  may 
lose  it  before  the  morrow  comes ;  and  if  an  equal  amount  of 
enjoyment  can  be  had  with  it  now,  he  will  be  apt  to  secure 
that  enjoyment  as  soon  as  possible.  But  when  he  sees  that 
the  enjoyment,  if  postponed,  may  be  considerably  increased,  he 
will  be  anxious  to  save ;  and  this  anxiety  will  be  greater  in 
proportion  to  the  probable  rate  of  increase,  and  to  the  comforts 
and  immunities  which  the  use  of  the  accumulation  may  bring. 
The  greater  the  consideration  and  influence  which  attend  the 
possession  of  wealth,  the  greater  will  be  the  temptation  to 
amass  wealth. 


THE    RATE    OF    PROFIT.  105 

What  has  been  called  "  the  effective  desire  of  accumulation," 
says  Mr.  Mill,  "  is  of  unequal  strength,  not  only  according  to 
the  varieties  of  individual  character,  but  to  the  general  state  of 
society  and  civilization.  Like  all  other  moral  attributes,  it  is 
one  in  which  the  human  race  exhibits  great  differences,  con- 
formably to  the  diversity  of  its  circumstances  and  the  stage  of 
its  progress."  Again,  "in  weighing  the  future  against  the 
present,  the  uncertainty  of  all  things  future  is  a  leading  ele- 
ment ;  and  that  uncertainty  is  of  very  different  degrees."  "  All 
circumstances,"  therefore,  as  Mr.  Rae  observes,  which  increase 
"  the  probability  of  the  provision  we  make  for  futurity  being 
enjoyed  by  ourselves  or  others,  tend  to  give  strength  to  the  ef- 
fective desire  of  accumulation.  Thus,  a  healthy  climate  or  oc- 
cupation, by  increasing  the  probability  of  life,  has  a  tendency 
to  add  to  this  desire.  When  engaged  in  safe  occupations,  and 
living  in  healthy  countries,  men  are  much  more  apt  to  be  fru- 
gal, than  in  unhealthy  or  hazardous  occupations,  and  in  cli- 
mates pernicious  to  human  life.  Sailors  and  soldiers  are 
prodigals.  In  the  West  Indies,  New  Orleans,  the  East  Indies, 
the  expenditure  of  the  inhabitants  is  profuse.  War  and  pesti- 
lence have  always  waste  and  luxury  among  the  evils  that  fol- 
low in  their  train." 

Improvidence  may  also  proceed  from  intellectual  as  well  as 
moral  causes.  "  Individuals  and  communities  of  a  very  low 
state  of  intelligence,"  says  Mr.  Mill,  "  are  always  improvident. 
A  certain  measure  of  intellectual  development  seems  necessary 
to  enable  absent  things,  and  especially  things  future,  to  act 
with  any  force  on  the  imagination  and  will.  The  effect  of 
want  of  interest  in  others  in  diminishing  accumulation  will  be 
admitted,  if  we  consider  how  much  saving  at  present  takes 
place,  which  has  for  its  object  the  interest  of  others  rather  than 
of  ourselves;  —  the  education  of  children,  their  advancement 
in  life-,  the  future  interests  of  other  personal  connections,  the 
desire  of  promoting,  by  the  bestowal  of  money  or  time,  objects 
of  public  or  private  usefulness.  If  mankind  generally  were  in 
the  state  of  mind  to  which  some  approach  was  seen  in  the  de- 
clining period  of  the  Roman  empire,  —  caring  nothing  for  their 
heirs,  as  well  as  nothing  for  their  friends,  the  public,  or  any 
object  which  survived  them,  —  they  would  seldom  deny  them- 
selves any  indulgence  for  the  sake  of  saving,  beyond  what  was 


106 


THE    DESIRE    OF    ACCUMULATION  : 


necessary  for  their  own  future  years ;  which  they  would  place 
in  life  annuities,  or  some  other  form  which  would  make  its  ex- 
istence and  their  lives  terminate  together." 

The  various  stages  of  civilization  depend  upon,  or  are  the 
consequence  of,  the  varying  strength  of  this  desire  of  accumu- 
lation. The  remnants  of  Indian  tribes  which  are  found  in 
villages  upon  the  banks  of  the  lower  St.  Lawrence  are  sur- 
rounded by  circumstances  which  ought  to  secure  to  them  all 
the  comforts  of  life,  and  which  would  enable  others  to  amass 
wealth.  They  have  abundance  of  fertile  land,  already  cleared 
from  the  forest,  and  manure  in  heaps  lies  beside  their  huts. 
Yet  such  are  their  apathy  and  improvidence  that  they  often 
suffer  extreme  want ;  and  from  the  privations  thus  endured, 
with  occasional  intemperance,  their  number  is  rapidly  dimin- 
ishing. Yet  their  apathy  does  not  arise  from  aversion  to  la- 
bor ;  for  they  are  industrious  enough  when  the  reward  of  toil 
is  immediate.  They  are  successful  in  hunting  and  fishing, 
and  they  work  with  ardor  when  employed  as  boatmen  on  the 
St.  Lawrence.  They  will  even  till  the  ground,  if  the  returns 
from  such  labor  are  speedy  and  large ;  they  will  raise  Indian 
corn,  which  grows  and  ripens  quickly  in  Canada,  and  yields 
perhaps  a  hundred  fold.  But  they  have  not  foresight  enough 
to  fence  their  fields,  and  hence,  when  the  situation  is  exposed 
to  the  incursions  of  cattle,  the  culture  is  abandoned. 

Nearly  as  low,  in  respect  to  foresight  and  prudence,  are  the 
emancipated  negroes  of  Hayti  and  in  the  British  West  Indies. 
In  a  tropical  climate,  where  little  clothing  or  shelter  is  needed, 
and  where  the  ground  is  so  fertile  that  the  labor  of  a  few 
weeks  will  supply  sustenance  for  a  year,  they  are  content  to 
gain  little  more  than  the  necessaries  of  a  merely  animal  exist- 
ence. "  From  five  acres  of  land  in  Jamaica,"  says  Mr.  Bige- 
low,  "  a  negro  will  supply  almost  all  his  physical  wants.  I 
have  seen  growing  on  a  patch  of  less  than  two  acres,  owned 
by  a  negro,  the  bread-fruit,  bananas,  yams,  oranges,  shaddocks, 
cucumbers,  beans,  pine-apple,  plaintain,  and  chiramoya,  be- 
sides many  kinds  of  shrubbery  and  fruits  of  secondary  value." 
Yet  where  nature  is  thus  bountiful,  flour  is  allowed  to  cost 
from  $  16  to  $  18  a  barrel,  butter  38  cents  a  pound,  eggs  from 
three  to  five  cents  apiece,  hams  25  cents  a  pound,  and  every- 
thing else  in  proportion.  "  Four  fifths  of  all  the  grain  con- 


THE    RATE    OF    PROFIT.  107 

sumed  in  Jamaica  is  grown  in  the  United  States,  on  fields 
where  labor  costs  more  than  four  times  as  much,  and  where 
every  kind  of  provision  but  fruit  is  less  expensive."  The  ease 
with  which  life  is  supported  fosters  indolence,  feebleness, 
gayety,  and  insouciance  ;  and  even  when  the  people  pretend  to 
labor,  their  work  is  scarcely  worth  paying  for.  "  In  the  sugar- 
mills,"  we  are  told,  "  from  twenty  to  thirty  men  and  women  are 
employed  to  do  what  five  American  operatives  would  do  much 
better  in  the  same  time,  with  the  aid  of  such  labor-saving 
agencies  as  would  suggest  themselves  at  once  to  an  intelligent 
mind  "  ;  and  "  this  is  but  one  of  the  thousand  ways  in  which 
labor  is  squandered  on  this  island."  The  people  might  supply 
themselves  with  all  the  luxuries  of  the  earth ;  but  they  are  con- 
tent to  live  in  a  swinish  abundance  of  the  grossest  necessaries, 
—  to  be  fat  and  shining,  and  to  sing,  chatter,  and  bask  in  the 
sun. 

Again,  accumulation  is  rapid  when  the  rate  of  profits  is 
large.  If  this  rate  is  so  high,  that  the  savings  of  a  few  years 
may  be  made  to  produce  as  much  as  the  original  income  from 
which  those  savings  were  made,  then  the  prospect  of  being  re- 
leased altogether  from  the  necessity  of  labor  will  stimulate  the 
habit  of  frugality  to  the  utmost.  The  average  rate  of  profits 
in  this  country  is  at  least  twice  as  large  as  in  Great  Britain ; 
for  the  interest  of  money  here  averages  over  six  per  cent,  while 
the  English  government  funds  yield  but  three  per  cent,  and 
the  ordinary  rate  for  short  loans  often  falls  below  that  point. 
But  the  rate  of  profits  on  capital  considerably  exceeds  the  rate 
of  interest  on  money ;  for  he  who  borrows  capital  undertakes 
the  risk  and  care  of  employing  it  to  advantage ;  and,  of  course, 
he  who  lends  his  capital,  because  unwilling  to  take  that  risk 
and  care  on  himself,  will  not  expect  so  high  a  rate  for  it  as  he 
might  obtain  by  using  it  himself.  When  a  great  deal  can  be 
made  by  the  use  of  money,  a  great  deal  will: be  given  for  the 
use  of  it ;  but  still  not  so  much,  but  that  something  shall  re- 
main to  compensate  one  for  the  skill  and  industry  that  are 
required  to  use  it  to  advantage.  The  average  rate  of  profits  in 
this  country  may  be  estimated  at  twelve  per  cent  a  year,  while 
the  corresponding  rate  in  England  is  but  six  per  cent.  I  speak 
of  the  annual  rate,  because,  if  the  dealer  turns  over  his  capital 
twice  in  a  year,  he  can  afford  to  sell  at  a  profit  of  only  six  per 


108 


THE    DESIRE    OF    ACCUMULATION  : 


cent,  though  the  annual  rate  for  borrowed  money  is  six  per 
cent. 

Assuming,  then,  the  annual  rate  of  profits  in  the  United 
States  to  be  twelve  per  cent,  and  that  the  laborer  or  dealer  uses 
his  savings  as  his  own  capital,  it  is  certain  that,  by  postponing 
the  period  of  consumption  or  enjoyment  for  a  little  over  six 
years,  the  amount  of  that  enjoyment  may  be  doubled.  In 
England,  in  order  to  double  the  enjoyment,  he  must  practise 
abstinence  for  twelve  years.  It  is  obvious,  then,  that  where 
there  is  the  most  need  of  capital,  the  temptation  to  accumu- 
late it  is  strongest,  the  rate  of  profits  being  high,  and  its  growth 
is  most  rapid. 

In  Holland,  nearly  two  centuries  ago,  after  a  period  of  al- 
most unequalled  commercial  prosperity,  the  rate  of  interest  fell 
to  about  two  per  cent,  the  rate  of  profits  suffered  a  correspond- 
ing reduction,  and,  as  a  necessary  consequence,  the  growth  of 
capital  almost  wholly  ceased.  Holland,  in  point  of  commer- 
cial and  manufacturing  enterprise,  has  been  in  a  stationary,  if 
not  a  declining  state,  for  about  two  centuries.  The  springs  of 
industry  are  not  relaxed,  for  the  people  are  still  sober  and  labo- 
rious ;  but  they  lack  the  energy  and  the  thirst  for  gain,  which 
caused  them,  in  the  seventeenth  century,  to  dot  the  surface  of 
the  globe  all  over  with  Dutch  colonies.  Few  will  practise  ab- 
stinence and  try  to  amass  wealth,  when  the  rate  of  profit  is 
but  little  over  four  per  cent. 

The  rate  of  interest  in  England,  in  Henry  VIIL's  time,  was 
limited  to  ten  per  cent,  which  implies  that  it  had  been  higher. 
Under  James  I.  it  was  reduced  to  eight,  and  after  the  Restora- 
tion of  the  Stuarts,  to  six  per  cent  Forty  years  afterwards,  it 
was  again  reduced  to  five,  and  a  continuance  of  the  same 
causes,  as  we  have  seen,  has  now  brought  it  down  to  three  per 
cent.  But  for  the  enlarged  intercourse  with  foreign  lands, 
which  has  tempted  English  capitalists  of  late  years  to  embark 
their  funds  in  enterprises  abroad,  in  Mexican  mines,  in  Conti- 
nental and  American  railroads,  in  Austrian  and  Russian  funds, 
and  in  United  States  stocks,  it  is  probable  that  the  interest  of 
money  and  the  profits  of  stock  would,  ere  now,  have  sunk  to 
that  low  point  at  which  the  desire  to  accumulate  ceases  alto- 
gether. 

True,   "there   would  be   adequate   motives  for  a  certain 


THE    RATE    OF    PROFIT.  109 

amount  of  saving,"  as  Mr.  Mill  remarks,  "even  if  capital 
yielded  no  profit.  There  would  be  an  inducement  to  lay  by 
in  good  times  a  provision  for  bad ;  to  reserve  something  for 
sickness  and  infirmity,  or  as  a  means  of  leisure  and  indepen- 
dence in  the  latter  part  of  life,  or  a  help  to  children  in  the  out- 
set of  it.  Savings,  however,  which  have  only  these  ends  in 
view,  have  not  much  tendency  to  increase  the  amount  of  capi- 
tal already  in  existence.  These  motives  only  prompt  each  per- 
son to  save  at  one  period  of  life  what  he  purposes  to  consume 
at  another,  or  what  will  be  consumed  by  his  children  before 
they  can  completely  provide  for  themselves."  "  There  are  al- 
ways some  persons  in  whom  the  effective  desire  of  accumula- 
tion is  above  the  average,  and  to  whom  less,  than  the  ordinary 
minimum  rate  of  profit  is  a  sufficient  inducement  to  save  ;  but 
these  merely  step  into  the  place  of  others  whose  taste  for  ex- 
pense and  indulgence  is  beyond  the  average,  and  who,  instead 
of  saving,  perhaps  even  dissipate  what  they  have  received." 

The  hope  of  elevating  one's  condition  in  the  \vorld  tends 
more  effectually  to  increase  the  national  wealth  in  proportion 
as  it  affects  a  larger  class  of  the  people.  In  most  civilized 
countries,  the  bulk  of  the  population  are  poor,  their  daily 
wages  hardly  sufficing  to  buy  their  daily  bread.  Their  sav- 
ings, if  it  is  possible  for  them  to  make  any,  must  be  in  very 
small  sums ;  and  the  inducement  for  them  to  be  frugal  must 
depend  on  the  possibility  of  immediately  investing  such  small 
sums  to  advantage.  One  of  the  great  improvements  of  mod- 
ern civilization  consists  in  the  means  afforded,  the  machinery 
contrived,  for  collecting  these  driblets  of  wealth,  and  bringing 
them  together  into  large  reservoirs,  whence  they  issue  in  abun- 
dant streams,  giving  efficiency  and  fertility  to  labor  throughout 
the  land.  The  water  which  falls  in  drops  upon  the  desert, 
sinks  through  the  sand,  and  leaves  the  ground  arid  and  barren 
as  before ;  but  when  collected  in  great  tanks  and  cisterns,  it 
turns  a  given  portion  of  that  desert  into  a  garden.  A  century 
or  two  ago,  if  the  laboring  part  of  the  population  made  any 
savings,  they  were  in  the  form  of  little  hoards  of  silver  or  gold, 
hid  in  an  old  stocking,  or  buried  in  the  garden.  But  because 
the  money  thus  stored  was  unproductive,  and  yielded  no  inter- 
est, and  because  it  was  always  at  hand  when  the  owner  was 
for  a  moment  tempted  to  some  indulgence  and  consequent  ex- 
10 


110  THE    DESIRE    OF    ACCUMULATION: 

pense,  the  number  and  amount  of  such  hoards  were  always 
small.  Now,  through  the  multiplication  of  the  branches  of 
retail  trade,  and  the  lesser  mechanic  arts,  and  through  joint- 
stock  corporations  and  savings'  banks,  the  first  half-eagle  which 
the  laboring  man  or  woman  saves  from  the  month's  wages  is 
profitably  invested,  and,  by  the  end  of  the  year,  is  increased 
by  the  twentieth  part  of  itself.  When  this  saving  has  reached 
a  very  moderate  amount,  it  can  be  made  to  accumulate  at 
compound  interest,  and  thus  to  double  itself  in  twelve  years. 
In  many  cases,  it  soon  comes  to  be  used  by  the  owner  himself 
as  capital ;  that  is,  it  is  invested  in  the  purchase  of  tools  or 
machinery,  or  a  small  stock  in  trade ;  and  it  may  then  accu- 
mulate at  the  rate,  of  ten  or  twelve  per  cent  a  year,  —  that  is, 
it  may  double  itself  every  six  or  seven  years.  The  result  is, 
that  he  who  began  life  as  a  common  laborer,  often  drives 
about  in  his  own  carriage  before  its  close. 

In  almost  any  other  part  of  the  world  than  New  England, 
I  should  be  afraid  to  give  this  sketch  as  an  illustration  of  the 
manner  in  which  the  wealth  or  available  capital  of  a  nation 
is  increased.  But  I  presume  it  is  a  safe  assertion,  that  at  least 
one  half  of  those  who  are  usually  called  wealthy  men,  in  Bos- 
ton and  its  neighborhood,  have  obtained  their  wealth  very 
nearly  in  the  manner,  or  through  the  process,  just  described. 
This  leads  us  to  perceive  that  the  aggregate  of  the  small  sav- 
ings made  by  the  bulk  of  the  population,  who  have  very  small 
means,  may  constitute,  and  in  this  country  actually  does  con- 
stitute, a  larger  annual  addition  to  the  whole  amount  of  na- 
tional capital,  than  the  sum  of  the  much  larger  savings  made 
by  the  few  who  are  usually  considered  as  capitalists. 

Mr.  Fair  stated,  in  1852,  in  his  evidence  before  a  commis- 
sion of  Parliament,  that,  according  to  an  estimate  based  upon 
the  returns  under  the  Income  Tax,  there  are  not  more  than 
236,000  persons  in  Great  Britain  whose  clear  annual  incomes 
exceed  £  200  each.  This  is  the  number,  therefore,  of  those 
who  may  be  considered  as  persons  of  wealth.  Their  aggre- 
gate income  amounts  to  £  174,810,000,  being  an  average  of 
about  £  740  to  each.  If  we  suppose  that  one  half  of  these 
persons  make  savings  to  the  extent  of  one  tenth  of  their  in- 
come, —  a  supposition  which  is  a  very  liberal  one,  —  the  accu- 
mulations of  the  rich  will  amount  to  £  8,740,500,  or  about 


THE    RATE    OF    PROFIT.  Ill 

$43,700,000.  That  this  may  not  appear  an  under-estimate, 
it  should  be  remembered,  that  the  customs  of  society  in  Eng- 
land require  the  style  and  expensiveness  of  living  to  come 
much  nearer  to  the  individual's  whole  income  than  is  usual  in 
this  country,  so  that  most  of  the  nobility  and  the  landed  gen- 
try, who  have  the  largest  incomes,  do  not  make  any  savings  at 
all,  and  many  even  run  in  debt,  or  encroach  upon  their  capital. 
A  nobleman  who  inherits  an  estate  of  £  20,000  a  year,  inher- 
its also  a  style  of  li ving  which  is  costly  enough  to  consume  it. 
In  the  United  States,  on  the  other  hand,  a  man  usually  begins 
poor,  and  therefore  with  frugal  habits,  and  consequently  hardly 
knows  what  to  do  with  the  income  of  a  large  property  when 
he  has  acquired  it.  He  has  no  ancestral  castle  to  maintain  in 
due  state,  and  no  county  to  contest  at  each  succeeding  elec- 
tion. Nay,  the  custom  of  the  country,  the  force  of  public  opin- 
ion, is  such,  that  he  cannot  make  his  personal  expenditure 
equal  to  his  income,  even  if  he  wished.  He  must  not  keep  a 
carriage  and  four,  nor  have  a  footman  to  stand  behind  his 
more  modest  equipage,  nor  clothe  his  servants  in  livery,  nor 
adopt  many  other  of  the  badges  by  which  some  persons  try  to 
convince  the  world  that  they  are  people  of  consequence.  'We 
are  accused  of  being  fond  of  titles,  it  is  true ;  but  the  epithets 
of  Major,  Colonel,  and  Honorable  cost  nothing  but  civility,  and 
so  do  not  help  a  man  to  spend  his  fortune.  We  do  not  tol- 
erate gold  lace,  nor  cocked  hats,  nor  tall  footmen  with  gold- 
headed  canes. 

How  great  is  the  possible  addition  to  the  national  capital 
from  the  savings  of  the  comparatively  poor,  —  of  persons  who 
live  either  upon  wages,  or  upon  incomes  so  small  that  they  do 
not  exceed  the  average  wages  of  expert  artisans  ?  Great  Brit- 
ain and  the  United  States  are  nearly  equal  in  point  of  popu- 
lation ;  and  the  census  (1841)  of  the  former  country  shows 
that  two  and  a  half  millions  of  male  adults,  or  one  half  of  the 
whole  nation,  are  laborers  or  operatives  who  subsist  entirely 
upon  wages.  We  will  suppose  that  only  one  half  of  these 
make  any  savings,  and  that  the  savings  of  each  frugal  and  in- 
dustrious laborer  might  amount  to  forty  dollars  a  year,  —  a 
sum  which  the  generality  of  English  laborers  certainly  are  not 
able  to  save,  but  which  most  prudent  and  laborious  male 
adults  in  New  England  might  save,  since  many  family  domes- 


112  THE    DESIRE    OF   ACCUMULATION. 

tics  and  manufacturing  operatives  here  actually  lay  aside  a 
larger  amount  than  this  every  year.  One  and  a  quarter  mil- 
lions of  savings  at  forty  dollars  each,  give  an  aggregate  of  fifty 
millions  of  dollars,  as  the  sum  which  might  be  added  each  year 
to  the  national  capital  by  the  savings  of  the  poor. 

Thus  far,  we  have  only  shown  what  might  be  accomplished ; 
and  the  result  throws  a  strong  light  on  our  general  proposition, 
that,  while  wealth  is  created  by  labor,  capital  accumulates  by 
the  exercise  of  frugality.  But  there  are  many  indications  — 
here  in  New  England,  at  least  —  that  the  rapid  growth  of  cap- 
ital is  actually  to  be  attributed  to  the  industrious  and  frugal 
habits,  —  I  will  not  say,  of  the  poor,  for,  strictly  speaking,  we 
have  no  poor  except  the  vicious,  and  the  recent  immigrants,  — 
but  of  that  part  of  our  population  who  are  engaged  chiefly  in 
manual  labor.  This  class  alone  deposit  money  in  our  Sav- 
ings' Banks,  the  accumulations  in  which,  in  Massachusetts 
alone,  where  our  population  is  less  than  a  million,  already  ex- 
ceed $  23,000,000.  In  England,  the  deposits  in  the  Savings' 
Banks  exceed  $150,000,000,  though  no  one  person  can  de- 
posit more  than  $  750.  It  must  be  remembered  also,  that  the 
reservoir  always  remains  full  to  this  extent,  though  a  stream  is 
always  flowing  out  of  it,  several  millions  being  annually  with- 
drawn, —  a  portion,  indeed,  for  unproductive  consumption,  but 
a  larger  portion  for  investment  in  other  forms,  in  stocks,  or  cap- 
ital for  retail  trade,  or  in  machinery  and  tools.  Considering 
that  the  class  in  our  community  who  make  use  of  the  Savings' 
Banks  is  not  only  the  poorest,  but  the  smallest,  and  that  a 
much  larger  class,  composed  of  small  farmers,  tradesmen,  and 
mechanics,  find  a  more  profitable  use  for  their  savings  by  im- 
mediately enlarging  then-  own  capital  with  them,  we  may  well 
regard  the  proposition  as  established,  that  the  national  capital 
grows  more  by  the  aggregate  of  the  small  savings  of  the  bulk 
of  the  people,  including  the  poorer  classes,  than  by  the  great 
gains  of  the  rich. 


ADVANTAGES    OF    THE    POSSESSION    OF    WEALTH.  113 


CHAPTER    X. 

THE  INCREASE  OF  CAPITAL  AS  AFFECTED  BY  THE  POLITICAL 
AND  SOCIAL  ADVANTAGES  ATTENDING  THE  POSSESSION  OF 
WEALTH. 

HAVING  shown  the  importance  of  small  savings  effected  by 
the  bulk  of  the  people,  we  come  to  the  following  inquiry :  — 
Under  what  circumstances  are  the  middling  and  lower  classes 
able  to  save,  and  by  what  means  is  their  inclination  to  frugal- 
ity most  effectually  stimulated  ?  I  answer,  that  the  most  pow- 
erful means  to  this  end  is  what  may  be  called  the  mobility  of 
society,  or  the  ease  and  frequency  with  which  the  members  of 
it  change  then:  respective  social  positions.  The  worst  of  all 
forms  of  civil  polity  is  that  which  binds  a  man  for  ever  to  that 
condition  of  life  in  which  he  was  born,  be  it  of  high  or  low  de- 
gree, however  he  may  have  merited  removal  from  it  by  his 
character,  acquisitions,  and  behavior.  Fixity  of  ranks  and 
classes,  or  the  existence  of  immunities  and  distinctions  which 
money  and  talent  can  neither  purchase  nor  remove,  is  a  bar  to 
the  accumulation  of  wealth,  —  a  bar  which  it  is  difficult  to 
overleap  just  in  proportion  to  the  importance  and  extent  of 
those  unpurchasable  privileges.  If  they  are  numerous  and  of 
great  moment,  if  they  cover  the  whole  ground  both  of  political 
influence  and  social  consideration,  what  inducement  is  there 
for  any  one  who  is  not  born  to  the  possession  of  them,  either 
to  labor  or  to  save  further  than  is  required  for  the  necessities 
of  the  present  hour,  —  the  point  at  which,  be  it  remembered, 
the  accumulation  of  capital  begins  ?  And  what  inducement  to 
accumulate  is  there  for  one  who  is  born  to  the  possession  of 
them,  since  he  already  enjoys  more  than  wealth  can  buy,  and 
cannot  forfeit  this  enjoyment  even  if  he  should  lose  his  wealth  ? 
The  great  improvement  in  the  industrial  organization  of  soci- 
ety in  modern  times,  whereby  the  increase  of  wealth  in  all 
civilized  nations  has  been  made  so  rapid  and  so  great,  has 
been  the  successive  breaking  down  and  removal  of  these  fixed 
and  arbitrary  barriers  and  divisions,  so  as  to  leave  the  whole 
10* 


114  POLITICAL    AND    SOCIAL    ADVANTAGES 

field  of  promotion  open  to  the  career  of  skill,  industry,  and 
economy.  A  brief  notice  of  a  few  points  in  the  politico-eco- 
nomical history  of  different  nations  will  illustrate  this  state- 
ment 

"Both  in  ancient  Egypt  and  Hindostan,"  and  to  a  great 
extent  still  in  the  latter  of  these  two  countries,  "the  whole 
body  of  the  people  was  divided  into  different  castes  or  tribes, 
each  of  which  was  confined,  from  father  to  son,  to  a  particular 
employment  or  class  of  employments.  The  son  of  a  priest 
was  necessarily  a  priest ;  the  son  of  a  soldier,  a  soldier ;  the 
son  of  a  laborer,  a  laborer ;  the  son  of  a  weaver,  a  weaver,  &c. 
In  both  countries,  the  caste  of  the  priests  held  the  highest  rank, 
and  that  of  the  soldier,  the  next ;  and  in  both  countries,  the 
caste  of  the  farmers  and  laborers  was  superior  to  the  castes  of 
the  merchants  and  the  manufacturers."  Adam  Smith  adduces 
these  facts  to  explain  why  agriculture  flourished  in  those  re- 
gions far  more  than  any  other  employment.  He  might  with 
greater  propriety  have  cited  them  to  explain  the  peculiar,  im- 
movable, statue-like  character  of  Hindoo  and  Egyptian  civil- 
ization. The  massive  granite  sphinxes,  half  covered  by  the 
sands  of  the  desert  among  which  they  have  rested  for  more 
than  three  thousand  years,  with  their  enigmatical  and  almost 
superhuman  expression  of  mingled  sweetness  and  severity,  fit 
emblems  of  mystery,  unchangeableness,  and  everlasting  repose, 
aptly  typify  the  character  and  the  institutions  of  the  people 
who  chiselled  them.  The  bodies  of  this  people  are  even  now 
drawn  from  the  tombs  in  which  they  have  lain  for  thirty  cen- 
turies, perfect  in  every  limb  and  lineament,  as  if  they  resisted 
change  even  after  death.  And  such  was  their  condition  dur- 
ing life ;  the  idea  of  movement,  alteration,  or  progress  seems 
never  to  have  occurred  to  them.  Institutions  merely  political, 
the  will  of  a  monarch  or  the  decrees  of  a  senate,  could  not  re- 
tain society  in  this  immovable  state  for  ages.  The  power  of 
religion  was  brought  in  to  render  sacred  the  fetters  which 
bound  it,  and  to  take  away  from  the  minds  of  the  common 
people  any  desire  to  rupture  them.  How  much  influence  su- 
perstition had  in  building  up  these  divisions  of  castes,  and  pre- 
serving them  from  violation  or  decay,  may  be  conjectured  from 
the  fact,  that  the  priests  always  formed  the  highest  caste,  and 
therefore  profited  most  by  this  peculiar  institution.  Civiliza- 


OF    THE    POSSESSION    OF    WEALTH.  115 

tion  thus  embalmed  and  immured  was  safe  both  from  progress 
or  decay  by  internal  causes.  It  might  have  remained  to  this 
day  just  as  it  was  in  the  time  of  the  Pharaohs,  if  invasion  from 
abroad  had  not  brought  it  to  a  violent  death,  —  if  the  Romans 
and  the  Arabs  had  not  successively  made  Egypt  a  prey  to 
their  thirst  for  foreign  dominion. 

Though  the  barriers  of  caste  prevented  the  people,  as  indi- 
viduals, from  making  any  progress  in  wealth,  their  peculiar 
polity  enabled  the  government  to  undertake  and  execute  works 
which  shame  the  magnificence  and  expensiveness  of  modern 
productions.  What  we  now  esteem  the  wonders  of  Egypt, 
her  obelisks  and  pyramids,  her  excavations  and  temples,  were 
strictly  public  works,  performed  at  royal  or  priestly  command 
by  the  multitude,  who  worked  without  pay,  because  labor  was 
the  function  of  their  caste,  and  the  part  which  they  believed 
the  gods  designed  to  be  their  vocation.  Wages  and  profits 
were  words  which  in  their  ears  had  no  meaning ;  all  their  time, 
all  their  labor,  was  due  to  the  state,  which  was  represented  by 
the  monarch  and  the  priests.  A  portion  of  their  time  or  of  the 
products  of  their  labor  was  granted  back  to  them,  which  might 
or  might  not  suffice  for  their  subsistence.  If  savings  were  ever 
made,  it  was  only  with  the  intention  of  obtaining  enlarged  en- 
joyment from  them  at  a  future  day,  never  for  the  purpose  of 
aiding  the  individual's  subsequent  labors  with  a  reserved  fund, 
or  of  purchasing  an  easier  or  more  elevated  position  with  them. 
In  the  station  of  life  in  which  each  person  was  born,  in  that  he 
was  content  to  die.  Of  course,  there  was  no  accumulation  of 
private  wealth.  Even  the  land  belonged  to  the  sovereign ;  all 
that  was  due  to  any  person  was  a  livelihood  in  the  profession 
or  caste  to  which  he  belonged,  with  that  measure  and  kind  of 
employment  and  comfort,  of  luxury  or  privation,  which  was 
allotted  to  every  other  member  of  the  same  caste.  Immobility 
was  the  great  characteristic  of  Hindoo  and  Egyptian  civiliza- 
tion. 

The  freer  spirit  and  quicker  intellect  of  the  Greeks,  the  pride 
and  military  ambition  of  the  Romans,  prevented  these  nations 
from  sinking  into  apathy,  or  stagnating  in  castes.  In  the  fierce 
democracy  of  Athens,  the  subtle  politician  and  fluent  de- 
claimer  often  elbowed  his  way  into  the  favor  of  his  fellow- 
citizens,  and  consequently  into  offices  of  honor  and  profit.  At 


116  POLITICAL    AND    SOCIAL    ADVANTAGES 

Rome,  a  man  of  plebeian  origin  not  ^infrequently  vanquished 
the  pride  of  the  patricians,  and  obtained  the  consulship,  or  the 
command  of  the  armies  of  the  republic.  There  was  freedom, 
there  was  life,  in  a  society  thus  constituted.  There  was  a  path 
open  to  effort,  and  a  motive  for  the  exercise  of 'industry  and 
self-denial.  In  the  turbulent  times  which  preceded  and  ac- 
companied the  fall  of  the  republic,  individuals  often  amassed 
large  fortunes,  and  with  these  purchased  the  honors  which 
they  had  not  political  sagacity,  or  military  skill  and  courage, 
enough  to  obtain  by  more  legitimate  means.  One  of  the  tri- 
umvirs who  shared  the  empire  of  the  world  with  Antony  and 
Octavius,  owed  his  political  power  solely  to  his  wealth.  Both 
these  nations  might  have  made  far  greater  progress  in  opulence, 
if  the  institution  of  slavery,  itself  a  caste,  had  not  existed 
among  them,  and  if  the  state  and  the  affairs  of  government 
had  not  monopolized  ambition  and  effort  to  so  great  an  extent, 
that  private  enterprise,  and  the  undertakings  of  individuals 
who  did  not  profess  to  look  to  the  commonwealth  for  their  re- 
ward, were  discouraged  or  held  in  light  esteem.  Both  at  Ath- 
ens and  at  Rome,  the  republic  was  everything  and  the  indi- 
vidual was  nothing ;  and,  as  a  consequence,  in  the  city  proper, 
society  was  composed  of  two  great  castes,  —  the  citizens  who 
were  devoted  to  public  affairs,  and  the  slaves.  The  wealth  of 
Rome  was  the  wealth  of  the  robber's  den,  obtained  by  plunder- 
ing the  rest  of  mankind.  Even  the  populace  of  this  great  city 
were  supported  by  gratuitous  distributions  of  the  corn  which 
was  levied  as  a  tribute  on  the  industry  of  the  Sicilians  and  the 
Africans ;  and  its  patricians  amassed  their  enormous  fortunes 
from  the  plunder  of  the  provinces  which  they  had  been  ap- 
pointed to  govern. 

With  regard  to  slavery  among  the  ancients,  it  has  been 
acutely  remarked  by  Sismondi,  that  because  it  was  only  an 
accident  of  the  right  of  war,  and  not  an  industrial  organiza- 
tion, it  did  not  discredit  labor  in  general.  The  slave  was  not 
a  mere  article  of  property,  or  a  means,  through  his  enforced 
toil,  of  increasing  his  master's  property.  He  was  rather  a 
token  of  his  owner's,  or  of  the  nation's,  prowess  in  war.  The 
possession  of  numerous  slaves  was  more  a  matter  of  pride,  a 
means  of  ostentation  and  magnificence,  than  a  mode  of  invest- 
ing capital  with  a  view  to  profitable  returns.  Few  of  the 


OF    THE    POSSESSION    OF    WEALTH.  117 

slaves  were  distinguished  by  color,  or  any  other  physical  pecu- 
liarity, which  might  serve  as  an  ineffaceable  mark  of  bondage 
or  degradation.  Hence,  when  manumitted,  they  at  once  took 
rank  in  society,  and  their  children  often  rose  to  high  honors  in 
the  state.  As  slaves,  indeed,  they  were  often  put  to  servile 
and  economical  uses ;  but  they  were  never  treated  as  mere  ma- 
chines for  the  production  of  wealth.  They  did  not  perform  all 
the  labor,  and  therefore  they  did  not  discredit  labor.  They 
were  a  caste,  and  so  did  not  accumulate  property,  either  for 
themselves  or  others ;  but  they  were  not  a  degraded  caste ; 
they  were  not  considered  vile,  as  were  the  Pariahs  in  India,  or 
as  African  slaves  are,  in  modern  times. 

"  The  unhealthy  climate  of  many  portions  of  Italy,"  says  M. 
de  la  Malle,  "  made  it  necessary  that  the  ground  should  be  cul- 
tivated by  freemen  who  were  robust  and  acclimated,  which  the 
slaves  seldom  were  ;  the  latter,  also,  increased  in  number  very 
slowly,  as  their  ill  health,  caused  by  insufficient  nourishment, 
long  confinement,  the  want  of  air,  and  bad  treatment,  made 
them  more  susceptible  to  the  impressions  of  climate." 

The  testimony  of  Varro,  a  contemporary  of  Caesar  and  Ci- 
cero, is  positive,  and  this  fact  ought  to  change  the  ordinary  no- 
tions as  to  the  kind  of  agriculture  pursued  in  Italy  at  a  time 
when  Rome  was  the  mistress  of  the  world,  and  the  number  of 
slaves  had  considerably  increased.  "  All  the  farms,"  says  Var- 
ro, "  are  cultivated  by  freemen,  or  by  slaves,  or  by  a  mixture  of 
these  two  classes.  Freemen  till  the  ground  either  by  them- 
selves, with  the  aid  of  their  children,  as  the  small  proprietors 
do,  or  by  free  laborers  hired  by  the  day,  in  the  busy  season, 
when  they  are  making  hay  or  collecting  the  grapes,  or,  finally, 
by  those  who  are  working  out  the  payment  of  a  debt.  I  speak 
of  all  farms  in  general,  as  it  is  more  profitable  to  cultivate  the 
unhealthy  districts  with  hired  laborers  than  with  slaves,  and 
even  in  the  healthy  localities,  the  great  labors  of  the  husband- 
men, such  as  the  collection  of  the  fruits,  the  harvest,  and  the 
vintage,  ought  to  be  confided  to  free  hired  workmen,  or  merce- 
naries." Those  who  belonged  to  a  caste,  as  the  slaves  did, 
and  who,  consequently,  were  not  stimulated  to  labor  by  the 
hope  of  rising  or  the  fear  of  falling  in  the  world,  could  not  be 
trusted  with  the  most  important  work,  even  on  a  farm.  Mod- 
ern experience  fully  confirms  this  result,  as  no  kind  of  cultiva- 


118  POLITICAL    AND    SOCIAL    ADVANTAGES 

tion  is  found  to  succeed,  if  conducted  by  slaves,  except  that  of 
tropical  products,  where  the  laborers  can  be  employed  in 
gangs. 

"  Finally,"  continues  M.  de  la  Malle,  "  even  in  the  time  of 
Trajan,  it  appears  that  in  the  northern  part  of  Italy,  in  the 
neighborhood  of  Lake  Como  at  least,  slaves  were  not  em- 
ployed in  tilling  the  ground."  Pliny  the  Younger  says,  "  I 
never  use  slaves  in  the  cultivation  of  my  farms,  nor  does  any 
one  in  the  vicinity.  This  class  of  persons  were  mainly  re- 
served for  household  labors  in  the  city ;  and  one  can  easily  be- 
lieve that  the  Gauls,  the  Germans,  the  Syrians,  the  inhabitants 
of  Asia  and  Africa,  when  brought  as  slaves  to  Italy,  would 
have  fallen  quickly  under  the  influence  of  a  climate  so  different 
from  their  own,  of  a  pestilential  air,  and  of  the  exhaustion 
caused  by  hard  labor  and  insufficient  nourishment." 

"  In  fact,  in  a  country  and  at  a  time  when  the  legal  rate  of 
interest  was  fixed  at  one  or  one  and  a  half  per  cent  a  year, 
and  when  the  citizens  were  prohibited  from  engaging  in  trade, 
manufactures,  or  the  mechanic  arts,  agriculture  was  the  only 
means  of  keeping  up  or  making  a  moderate  addition  to  one's 
fortune.  Landed  property  was  much  divided,  and  the  small- 
ness  of  the  farms  allowed  them  to  be  cultivated  by  the  propri- 
etor's own  hands  and  those  of  his  family."  There  were  really 
but  three  classes  in  the  community,  separated  by  lines  of  divis- 
ion so  permanent  as  almost  to  form  them  into  castes ;  these 
were  the  slaves,  the  small  agriculturists,  and  those  who  were 
either  devoted  to  the  service  of  the  state,  or  who  depended  on 
it  for  subsistence.  At  least,  this  was  the  condition  of  Rome 
under  the  republic,  when  the  severe  virtues  of  simplicity,  cour- 
age, and  frugality  were  in  request.  Wealth  then  was  not  a 
passport  to  honor,  and  wealth  accordingly  was  not  accumu- 
lated. Cincinnatus  was  summoned  from  the  plough  to  take 
the  helm  of  state. 

The  empire  wholly  changed  the  face  of  affairs ;  but  as  this 
rapidly  degenerated  into  an  Oriental  despotism,  in  which  the 
insecurity  of  life  and  property  was  a  sufficient  bar  to  the  accu- 
mulation of  the  latter,  we  need  not  dwell  upon  the  causes  of 
its  decline. 

After  the  fall  of  the  Roman  empire  in  the  West,  and  the  es- 
tablishment of  various  tribes  of  barbarian  conquerors  upon  its 


OF    THE    POSSESSION    OF    WEALTH.  119 

ruins,  a  great  step  was  taken  in  social  economy  by  the  virtual 
emancipation  of  one  large  class  in  the  community  from  the 
fetters  of  caste.  I  refer  to  the  inhabitants  of  the  free  cities  or 
towns,  the  foundation  of  which,  in  Germany,  France,  and  It- 
aly, was  the  first  step  towards  the  creation  of  the  social  polity 
of  modern  times.  Their  population,  indeed,  says  Adam 
Smith,  "  consisted  of  a  very  different  order  of  people  from  the 
first  inhabitants  of  the  ancient  republics  of  Greece  and  Italy. 
They  were  chiefly  tradesmen  and  mechanics,  who  seem  in 
those  days  to  have  been  of  servile,  or  very  nearly  of  servile,  con- 
dition. They  s.eem,  indeed,  to  have  been  a  very  poor,  mean 
set  of  people,  who  used  to  travel  about  with  their  goods  from 
place  to  place,  and  from  fair  to  fair,  like  the  hawkers  and  ped- 
dlers of  modern  times."  They  were  liable,  while  thus  travelling 
about,  to  great  exactions  ;  they  were  either  plundered  without 
mercy  by  the  arrogant  and  rapacious,  or  they  paid  heavy  taxes 
and  tolls  as  a  price  of  protection.  "  Sometimes  the  king,  some- 
times a  great  lord,  would  grant  to  particular  traders,  especially 
to  such  as  lived  on  their  own  lands,  a  general  exemption  from 
such  taxes ;  and  then,  though  in  other  respects  nearly  servile 
in  their  condition,  they  were  called  free  traders"  They  were 
allowed  to  give  away  their  own  daughters  in  marriage,  their 
children  were  permitted  to  inherit  their  property,  they  were  al- 
lowed to  dispose  of  their  effects  by  will ;  in  short,  they  were 
released  from  the  most  oppressive  of  the  feudal  burdens,  to 
which,  as  of  the  lower  class  in  society,  they  had  hitherto  been 
subject.  "  They  were  generally  at  the  same  time  erected  into 
a  commonalty,  or  corporation,  with  the  privilege  of  having  mag- 
istrates and  a  town-council  of  their  own,  of  making  by-laws  for 
their  own  government,  of  building  walls  for  their  defence,  and 
of  reducing  all  their  inhabitants  to  military  discipline  by  oblig- 
ing them  to  watch  and  ward."  The  nobles  despised  the  burgh- 
ers or  citizens,  whom  they  regarded  as  a  parcel  of  emancipated 
slaves,  devoted'  to  base  mechanic  arts,  and  whose  wealth  ex- 
cited their  envy  and  indignation.  The  king,  on  the  other 
hand,  favored  them,  as  a  counterbalance  to  the  power  of  the  no- 
bility, whom  they  hated  and  feared;  and  the  weakest  mon- 
arch s,  consequently,  were  most  liberal  in  their  grants  of  privi- 
leges to  the  cities  and  towns.  Thus  the  prosperous  cities  of 
France  and  the  Low  Countries,  the  famous  Hanse  towns  of 


120  POLITICAL    AND    SOCIAL    ADVANTAGES 

Germany,  and  the  flourishing  commercial  republics  of  Italy 
and  Switzerland,  came  into  being. 

In  the  country,  the  distinctions  of  caste  and  the  consequent 
limitations  of  employment  still  existed.  The  great  barons 
lived  remotely  from  each  other,  each  on  his  own  estate,  sur- 
rounded by  his  retainers  and  serfs,  whose  only  occupations 
were  war  and  agriculture,  and  who  had  no  hope  of  improving 
their  condition.  Exposed  to  every  sort  of  violence,  they  natu- 
rally contented  themselves  with  a  bare  subsistence ;  for  to  ac- 
cumulate more  would  only  excite  the  rapacity  of  their  oppres- 
sors. If  one  of  them  did  make  some  small  savings,  he  hoarded 
them  with  care  and  secrecy,  till  he  could  find  some  opportunity 
of  running  away  to  a  town,  where,  if  he  could  conceal  himself 
for  a  year,  he  was  free  for  ever.  Thus  a  city  often  grew  up  to 
great  wealth  and  splendor,  while  the  country  in  its  neighbor- 
hood was  in  poverty  and  wretchedness.  The  great  lords  them- 
selves could  obtain  the  articles  of  luxury  which  they  desired 
only  by  bartering  raw  agricultural  produce  for  them,  at  a  great 
disadvantage,  with  the  inhabitants  of  the  towns.  As  the 
wealth  and  military  strength  of  these  municipal  corporations 
increased,  they  could  no  longer  be  taxed  but  by  their  own  con- 
sent ;  hence  they  were  empowered  to  send  delegates  to  parlia- 
ment or  the  general  assembly  of  the  states  of  the  kingdom, 
where,  in  connection  with  the  clergy  and  the  nobles,  they 
granted  extraordinary  aids  to  the  king,  and  had  a  potential 
voice  in  managing  the  affairs  of  the  nation. 

These  cities  were  not  merely  republican ;  they  were  tessen- 
tially  democratic,  in  their  origin,  then:  institutions,  their  social 
relations,  and  then:  tendencies  ;  and  my  point  is  to  show,  that 
this  democratic  character  was  the  first  cause  of  their  rapid 
growth  in  opulence.  Being  originally  servile,  or  nearly  servile, 
in  condition,  the  inhabitants  had  no  distinctions  of  rank  to 
begin  with ;  their  natural  enemies  were  the  nobles,  from  whose 
oppressive  sway  they  were  but  recently  emancipated.  Trade 
and  manufactures,  being  their  only  occupations,  were  necessa- 
rily held  in  high  esteem  among  them ;  and  he  enjoyed  their 
highest  confidence  and  respect  who  had  been  most  successful 
in  these  pursuits.  A  common  interest  and  common  perils 
bound  them  very  firmly  to  each  other ;  and  the  direction  of 
affairs  in  their  little  state  was  naturally  intrusted  to  those 


OF    THE    POSSESSION    OF    WEALTH.  121 

whose  skill,  prudence,  industry,  and  economy  had  been  already 
rewarded  with  the  largest  accumulations  of  wealth.  No  one 
was  ashamed  of  his  craft ;  no  one  had  anything  to  be  proud 
of  but  his  riches.  A  brewer  and  a  tanner,  a  weaver  and  a 
goldsmith,  sat  side  by  side  in  the  town  councils,  or  led  the  cit- 
izens to  the  defence  of  the  walls,  and  even  conducted  them  in 
armies  to  the  field,  where  they  often  defeated  the  chivalry  of 
France  and  Germany,  and  sometimes  triumphed  over  their 
own  monarchs.  Van  Artevelde  of  Ghent  was  a  brewer ;  the 
Medici  of  Florence,  though  popes  and  kings  were  reckoned 
among  their  posterity,  were  at  first  only  successful  merchants. 
Wealth  being  thus  the  only  passport  to  distinction,  and  all  the 
avenues  to  it  being  in  high  repute,  its  possession  was  eagerly 
coveted,  and  the  virtues  of  industry  and  frugality  were  prac- 
tised to  the  farthest  extent.  With  the  growth  and  spread  of 
opulence,  and  the  calling  forth  of  talent  from  the  whole  com- 
munity through  the  absence  of  artificial  distinctions,  the  rise 
and  progress  of  literature  and  the  fine  arts  were  necessarily 
associated.  Poetry,  painting,  sculpture,  and  architecture  had 
their  origin,  in  modern  times,  in  the  commercial  republics  of 
Pisa  and  Florence,  and  the  free  cities  of  Flanders. 

Wealth  passed  freely  from  hand  to  hand.  Feudalism  was 
barred  out  by  the  city  walls ;  and  the  father's  property,  instead 
of  being  kept  together  for  the  aggrandizement  of  the  family  in 
the  person  of  the  oldest  son,  was  distributed  equally  among 
the  children.  If  one  or  more  of  these  were  prodigal,  careless, 
or  indolent,  they  sank  to  that  level  whence  the  thrift  of  the  fa- 
ther had  raised  them,  and  their  places  were  filled  by  the  more 
capable  and  industrious.  These  alternations  of  fortune,  rapid 
and  frequent,  kept  up  in  the  community  a  thirst  for  gain,  and 
kept  down  discontent  and  civil  commotions.  An  aristocracy 
of  wealth  has  this  at  least  to  recommend  it,  if  wholly  discon- 
nected with  an  aristocracy  of  birth,  —  that  by  its  fluctuations 
it  rather  encourages  effort  than  represses  it.  While  society 
stagnated  among  the  feudal  nobility  and  at  the  courts  of  feu- 
dal monarchs,  it  was  galvanized  into  an  almost  unnatural  ac- 
tivity within  the  precincts  of  the  little  civic  republics  of  Italy, 
Germany,  and  the  Low  Countries.  The  proud  nobles  were 
reduced  to  seek  aid  of  the  fat  and  wealthy  burghers,  the  pains- 
taking artisans,  whom  they  affected  to  despise.  They  obtained 
11 


122  POLITICAL    AND    SOCIAL    ADVANTAGES 

loans  from  them,  for  which  they  gave  their  lands  in  pawn,  and 
even  sold  to  them  outright  their  castles  and  hereditary  estates. 
Ennobled  by  the  possession  of  these,  the  ambition  of  the  citi- 
zens grew  by  what  it  fed  on,  and  not  infrequently,  as  in  the 
case  of  the  Medici  at  Florence,  they  became  the  ancestors  of  a 
line  of  kings. 

This  sketch  of  the  causes  affecting  the  growth  of  opulence 
in  ancient  and  modern  times  is  introduced  principally  for 
the  purpose  of  illustrating  the  most  remarkable  difference  in 
the  social  condition  of  Great  Britain  and  the  United  States. 
The  most  striking  thing  in  the  aspect  of  society  here  is  the 
constant  strain  of  the  faculties,  in  all  classes,  in  the  pursuit  of 
wealth,  —  the  restlessness,  the  feverish  anxiety  to  get  on,  which 
English  writers,  at  least,  are  apt  to  regard  only  as  "  the  disa- 
greeable symptoms  of  one  of  the  phases  of  industrial  progress." 
In  whatever  light  it  ought  to  be  viewed,  they  are  certainly 
mistaken  in  considering  it  as  a  consequence  of  the  recent  for- 
mation of  our  institutions,  and  the  recent  establishment  of  our 
people  on  the  shores  of  a  new  world,  —  in  attributing  it  to  our 
favorable  position,  with  an  abundance  of  fertile  land,  and  with 
sources  of  opulence  as  yet  fresh  and  unexhausted.  Were  such 
causes  adequate  to  produce  this  particular  effect,  we  should 
find  society  exhibiting  the  same  characteristics  wherever  it  was 
similarly  situated,  —  in  British  America,  for  instance,  in  Brit- 
ish Australia,  and  over  a  great  portion  of  the  South  American 
continent.  But  it  is  not  so ;  and  we  must  therefore  look  for 
an  explanation  of  the  phenomenon  to  some  cause  which  is  pe- 
culiar to  our  own  social  state,  —  to  some  stimulus  acting  upon 
what  political  economists  call  "  the  effective  desire  of  accumu- 
lation," which  has  full  scope  to  operate  here,  while  it  is 
repressed  or  much  restricted  in  all  other  nations,  —  even  in 
England,  where  the  character  of  the  population  in  other  re- 
spects is  so  similar  to  our  own. 

I  find  such  a  peculiar  operating  cause  in  the  fact,  that  every 
individual  here  has  the  power  to  make  savings,  if  he  will,  and 
almost  as  large  as  he  will,  —  and  has  the  certainty  that  the 
savings  when  made,  the  wealth  when  accumulated,  will  imme- 
diately operate,  in  proportion  to  its  amount,  to  raise  the  frugal 
person's  position  in  life,  —  to  give  him,  in  fact,  the  only  dis- 
tinction that  is  recognized  among  us.  Neither  theoretically 


OF    THE    POSSESSION    OF    WEALTH.  123 

nor  practically,  in  this  country,  is  there  any  obstacle  to  any  in- 
dividual's becoming  rich,  if  he  will,  and  almost  to  any  amount 
that  he  will ;  —  no  obstacle,  I  say,  but  what  arises  from  the 
dispensations  of  Providence,  from  the  unequal  distribution  of 
health,  strength,  and  the  faculties  of  mind.  In  other  words, 
there  are  no  obstacles  but  natural  and  inevitable  ones ;  society 
interposes  none,  and  none  exist  which  society  could  remove. 
And  ours  is  the  only  community  on  earth  of  which  this  can 
be  said.  Here  there  are  no  castes,  and  not  even  an  approach 
to  a  division  of  society  by  castes.  Our  whole  population  is  in 
that  state  which  I  have  attempted  to  describe  as  the  condition 
of  the  inhabitants  of  a  free  town  in  the  Middle  Ages.  The 
property  which  is  rapidly  gained  is  often  quite  as  rapidly 
spent,  for  the  sake  of  that  consideration  and  influence  which 
the  reputation  of  riches  alone  can  give.  Hence,  wealth  circu- 
lates among  us  almost  as  rapidly  as  the  money  which  is  its 
representative.  A  great  fortune  springs  up,  like  the  prophet's 
gourd,  in  a  night,  and  is  dissipated  by  some  unforeseen  acci- 
dent on  the  morrow.  Every  one  is  made  restless  and  anxious 
by  this  exposure  to  sudden  change ;  but  one  great  good  comes 
of  it,  that  it  keeps  down  permanent  discontent,  and  stifles  the 
jealousy  that  is  usually  nursed  by  social  differences  and  ine- 
qualities of  fortune.  How  is  it  possible,  indeed,  that  the  poor 
should  be  arrayed  in  hostility  against  the  rich,  when  —  to 
adopt  a  former  illustration  —  the  son  of  an  Irish  coachman  be- 
comes the  governor  of  a  State,  and  the  grandson  of  a  million- 
naire  dies  a  pauper?  The  consequence  of  the  whole  is  an 
unceasing  energy  and  activity  in  the  pursuit  of  wealth,  which 
accomplish  greater  wonders  than  all  the  modern  inventions  of 
science,  which  actually  generate  enthusiasm  of  character,  and 
are  regarded  by  foreigners  with  surprise  and  distrust,  as  the 
tokens  of  some  constitutional  disease  in  the  body  politic.  Even 
the  Irish  immigrant  here  soon  loses  his  careless,  lazy,  and  tur- 
bulent disposition,  and  becomes  as  sober,  prudent,  industrious, 
and  frugal  as  his  neighbors.  Nearly  all  the  enormous  fortunes 
that  have  been  gathered  in  this  country  are  the  growth  of  a 
single  lifetime,  and  therefore,  even  if  they  were  more  evenly 
distributed  than  they  now  are  at  the  death  of  their  founders, 
there  would  not  be  a  smaller  number  of  them  in  the  succeed- 
ing generation.  Consequently,  they  are  regarded  as  the  prizes 


124  POLITICAL    AND    SOCIAL    ADVANTAGES 

of  industry,  economy,  and  enterprise ;  and  the  sight  of  them 
stimulates  and  sustains  exertion,  instead  of  chilling  and  re- 
pressing it,  which  is  the  effect  produced  by  the  fixedness  in 
certain  families  of  vast  hereditary  estates. 

The  aspect  of  society  in  England  in  this  respect  I  will  not 
say  is  the  direct  contrary  of  what  it  is  here,  for  with  regard  to 
a  very  large  and  influential  class,  it  is  just  the  same.  The 
middle  class  —  what  on  the  Continent  would  be  called  the 
bourgeoisie,  the  merchants,  the  manufacturers,  the  small  trades- 
men, the  master  mechanics  —  are  about  as  busy  as  we  are 
here  in  the  pursuit  of  wealth  ;  and  their  numbers  and  influence 
in  the  state  gave  occasion  to  Napoleon's  sarcasm,  that  the 
English  were  a  nation  of  shopkeepers.  But  the  parallel  be- 
tween their  condition  and  that  of  the  free  towns  in  the  Middle 
Ages  may  be  carried  much  farther ;  outside  of  the  city  walls 
there  are  the  nobles  and  the  serfs.  The  effect  of  the  activity  of 
the  commercial  class  upon  the  eye  of  the  philosophical  ob- 
server is  qualified  by  the  comparative  repose  —  the  stagnation, 
one  can  almost  say  —  of  the  laboring  poor  and  of  the  nobility 
and  landed  gentry.  These  two  classes,  the  top  and  the  bottom 
of  English  society,  are  true  castes,  for  nothing  short  of  a  mir- 
acle can  elevate  or  depress  one  who  is  born  a  member  of 
either.  The  true  movement,  the  life,  of  the  community  in 
Great  Britain  is  among  those  who  are  engaged  in  commerce 
and  manufactures ;  here  are  alternations  of  fortune,  not  so 
frequent,  perhaps,  as  in  this  country,  but  as  sudden  and  as 
great.  An  Arkwright  begins  life  as  a  barber,  and  ends  it  as  a 
millionnaire ;  a  Peel  gives  his  days  and  his  nights  to  cotton- 
spinning,  and  his  son  becomes  prime  minister  of  England. 
But  outside  of  this  class  there  is  stagnation  and  death.  One 
half  of  the  whole  population  is  composed  of  laborers  who  sub- 
sist entirely  upon  wages,  who  cannot  make  savings  if  they 
would,  for  their  whole  earnings  barely  suffice  to  keep  soul  and 
body  together.  Hopeless  of  rising,  encouraged  by  no  examples, 
among  those  who  were  born  his  equals,  of  elevation  to  a  higher 
grade,  the  laborer  has  no  ambition,  no  thought  even,  of  chang- 
ing his  position  in  life.  His  condition  is  best  described  in  the 
strong  language  of  McCulloch,  when  he  speaks  of  "  the  irre- 
trievable helotism  of  the  working  classes  of  England."  And 
the  upper  classes,  the  nobility  and  the  gentry,  occupy  a  sphere 


OF    THE    POSSESSION    OF    WEALTH.  125 

which  is  equally  immovable.  With  estates  locked  up  by  en- 
tails and  marriage  settlements,  so  that  they  cannot  squander 
them,  with  an  inherited  scale  of  expenditure  proportionate  to 
their  rank  and  fortune,  so  that  they  cannot  make  savings  from 
income,  and  with  a  measure  of  political  influence  and  social 
consideration  secured  to  them  by  the  long-established  habits 
and  opinions  of  their  countrymen,  they  form  a  caste  almost  as 
fixed  as  that  of  the  Bramins  in  India. 

The  difference  in  the  aspect  of  society  and  the  social  condi- 
tion of  the  people  between  Great  Britain  and  the  United 
States  seems  to  me  one  of  the  most  pregnant  and  instructive 
facts  which  the  political  economist  has  to  consider;  for  it 
shows  the  superiority  of  moral  over  physical  causes  in  the 
growth  of  national  opulence,  and  that  the  hope  of  rising  in  the 
world  is  the  chief  motive  for  the  accumulation  of  capital. 
Great  inequality  in  the  distribution  of  wealth  may  operate 
either  as  a  check  or  a  spur  to  industry  and  frugality ;  it  is  not, 
then,  in  itself,  to  be  deprecated.  On  the  contrary,  a  perfectly 
uniform  partition  of  the  goods  of  this  world,  if  it  were  possible, 
which  it  is  not,  would  create  universal  torpor.  Take  away  the 
fear  of  poverty  and  the  hope  of  rising  in  the  world,  and  no  one 
would  exert  himself  but  for  his  own  amusement.  Add  the 
power  of  a  despot,  to  make  such  exertion  compulsory,  and  we 
should  have  exactly  that  state  of  things  which  existed  in  Egypt 
and  India,  when  the  institution  of  castes  as  yet  was  unim- 
paired. If  the  whole  population  formed  but  one  caste,  from 
which  they  could  neither  sink  nor  rise  by  any  fault  or  merit  of 
their  own,  they  would  be  no  more  inclined  to  labor  than  if 
they  were  divided  into  several  castes.  It  is  the  fixedness,  and 
not  the  inequality,  of  fortunes  which  is  to  be  dreaded ;  it  is  the 
retention  of  them  in  the  same  families  throughout  many  gen- 
erations, which  chills  exertion  and  unnerves  the  right  arm  of  toil. 
Wherever  there  is  motion,  there  is  life.  Property  cannot  be 
rendered  immovable,  except  by  the  effect  of  human  institutions 
which  are  designed  to  counteract  the  laws  of  nature.  In  this 
instance,  surely,  if  in  no  other,  the  political  economist  has  a 
right  to  cry,  Laissez  faire  !  let  alone !  and  do  not  attempt  to 
amend  the  ways  of  Providence !  We  do  try  to  amend  them 
when  we  attempt  to  enforce,  or  to  render  permanent,  either 
equality  or  inequality.  Laws  of  primogeniture  and  entail,  the 
11* 


126  POLITICAL    AND    SOCIAL    ADVANTAGES 

object  of  which  is  to  insure  to  certain  families  the  possession 
of  their  wealth  for  ever,  are  not  a  whit  more  unnatural  and  un- 
just in  their  operation,  than  would  be  the  schemes  of  the  phil- 
anthropic reformers,  as  they  call  themselves,  who  would  fain 
reconstruct  society  on  the  basis  of  making  the  distribution  of 
all  property  equal  and  unchangeable. 

"  The  laws  and  conditions  of  the  production  of  wealth,"  as 
Mr.  Mill  remarks,  "  partake  of  the  character  of  physical  truths. 
There  is  nothing  optional  or  arbitrary  in  them.  Whatever 
mankind  produce  must  be  produced  in  the  modes  and  under 
the  conditions  imposed  by  the  constitution  of  external  things, 
and  by  the  inherent  properties  of  their  own  bodily  and  mental 
structure.  Whether  they  like  it  or  not,  their  production  will 
be  limited  by  the  amount  of  their  previous  accumulation,  and, 
that  being  given,  it  will  be  proportional  to  their  energy,  their 
skill,  the  perfection  of  their  machinery,  and  their  judicious  use 
of  the  advantages  of  combined  labor.  Whether  they  like  it  or 
not,  the  unproductive  expenditure  of  individuals  will,  to  an 
equal  extent,  tend  to  impoverish  the  community,  and  only 
their  productive  expenditure  will  enrich  it.  The  opinions  or 
the  wishes  which  may  exist  on  these  different  matters,  do  not 
control  the  things  themselves.  We  cannot  indeed  foresee  to 
what  extent  the  modes  of  production  may  be  altered,  or  its 
powers  increased,  by  future  extensions  of  our  knowledge  of 
the  laws  of  nature,  suggesting  new  processes  of  industry  of 
which  we  have  at  present  no  conception.  But  howsoever  we 
may  succeed  in  making  for  ourselves  more  space  within  the 
limits  set  by  the  constitution  of  things,  these  limits  exist; 
there  are  ultimate  laws  which  we  did  not  make,  which  we 
cannot  alter,  and  to  which  we  can  only  conform." 

Among  such  ultimate  laws  is  the  tendency  to  an  unequal 
distribution  of  the  wealth  that  is  created  by  human  labor.  A 
law  of  natural  justice,  which  is  recognized  by  savages  quite  as 
much  as  by  civilized  nations,  assigns  the  ownership  of  a  useful 
article  to  him  by  whose  skill  and  industry  that  article  was  cre- 
ated. The  game  that  is  caught,  the  implement  of  the  chase 
that  is  manufactured,  belongs,  by  the  consent  of  all,  to  him  by 
whom  it  is  caught  or  made.  Nor  is  any  alteration  produced 
in  this  law  because  the  successful  person  has  so  much  strength, 
skill,  and  enterprise,  that  he  can  catch  or  manufacture  two  or 


OF    THE    POSSESSION    OF    WEALTH.  127 

three  times  as  much  as  any  other  member  of  the  tribe.  The 
property  is  still  recognized  as  his,  for  this  simple  reason,  if  for 
no  other,  —  that  he  would  not  put  forth  his  force  and  ingenu- 
ity, if  others  should  deprive  him  of  their  fruits.  Again,  if  he 
chooses  to  hold  these  articles  in  reserve,  instead  of  immediately 
consuming  them,  if  he  prefers  a  wigwam  well  stocked  with  im- 
plements of  war  and  the  chase,  and  a  store  of  food  for  future 
use,  to  present  indolence  or  the  immediate  gratification  of  his 
appetites,  still  his  rights  of  ownership  are  respected.  His  pru- 
dence and  economy,  as  much  as  his  strength  and  skill,  are  al- 
lowed to  redound  exclusively  to  his  own  advantage.  There  is 
even  a  stronger  reason  for  respecting  his  property  in  this  case 
than  in  the  former  one  ;  for  the  whole  community  profit  by  his 
savings ;  they  operate  to  some  extent  as  an  insurance  to  them 
all  against  famine.  There  is  now  a  stock  of  food  or  imple- 
ments in  the  tribe,  which,  though  not  common  property,  may 
still  operate  for  the  benefit  of  all  at  some  future  day,  when  the 
chase  happens  to  be  unproductive,  because  the  owner  will  sell 
them  to  others  for  their  services,  or  as  a  debt,  or  for  honors 
which  it  may  be  in  their  power  to  bestow. 

In  this  simple  instance,  we  can  easily  see  how  injurious  it 
would  be  to  the  common  welfare  if  the  rights  of  property  were 
not  respected,  and  how  surely  such  respect  tends  to  an  unequal 
distribution  of  the  goods,  I  will  not  say,  of  fortune,  but  of 
industry  and  frugality.  As  men  are  differently  endowed  by 
nature  with  faculties  of  mind  and  body,  with  indolence  or  en- 
ergy, with  improvidence  or  thrift,  so  their  situations  in  life 
must  differ.  And  it  is  the  true  policy  of  society  to  encourage 
the  more  valuable  qualities ;  —  not  to  dishearten  frugality  by 
depriving  it  of  its  savings,  nor  to  foster  idleness  by  feeding  it 
with  the  fruits  obtained  by  the  persevering  toil  of  others.  In 
civilized  society,  the  same  principles  hold.  The  case  becomes 
a  little  more  complicated,  because,  by  the  transmutations  of 
capital  that  have  already  been  explained,  the  property  of  an  in- 
dividual is  constantly  assuming  various  shapes.  But  so  long 
as  it  continues  productive  property,  so  long,  in  one  form  or  an- 
other, it  must  further  and  assist  the  operations  of  labor ;  and 
so  far  it  must  benefit  others  as  well  as  the  owner.  The  gen- 
eral law,  that  industry  is  limited  by  capital,  is  borne  out  by  the 
obvious  consideration,  that  without  implements,  machinery, 


128  POLITICAL    AND    SOCIAL    ADVANTAGES 

raw  material,  and  a  previously  accumulated  stock  of  food  and 
clothing,  the  workman  cannot  bestow  his  labor  to  advantage, 
—  cannot,  in  fact,  work  at  all. 

Even  if  it  were  granted,  that  all  the  wealth  of  a  nation  could 
be  distributed  equally  among  all  the  people,  and  that  the  stock 
of  it,  by  obliging  all  to  labor  alike,  would  for  ever  remain  equal 
to  all  their  wants,  —  and  no  more  improbable  supposition 
could  be  framed,  —  it  is  certain  that  this  would  be  no  real  im- 
provement of  their  condition.  "  Those  who  have  never  known 
freedom  from  anxiety  as  to  the  means  of  subsistence,"  says  J. 
S.  Mill,  "  are  apt  to  overrate  what  is  gained  for  positive  enjoy- 
ment by  the  mere  absence  of  that  uncertainty.  The  necessa- 
ries of  life,  when  they  have  always  been  secure  for  the  whole 
of  life,  are  scarcely  more  a  subject  of  consciousness,  or  a  source 
of  happiness,  than  the  elements.  There  is  little  attractive  in  a 
monotonous  routine,  without  vicissitudes,  but  without  excite- 
ment, —  a  life  spent  in  the  enforced  observance  of  an  external 
rule,  and  performance  of  a  prescribed  task;  in  which  labor 
would  be  devoid  of  its  chief  sweetener,  the  thought  that  every 
effort  tells  perceptibly  on  the  laborer's  own  interests  or  on  those 
of  some  one  with  whom  he  identifies  himself;  in  which  no  one 
could  by  his  own  exertions  improve  his  condition,  or  that  of 
the  objects  of  his  private  affections ;  in  which  no  one's  way  of 
life,  occupations,  or  movements  would  depend  on  choice,  but 
each  would  be  the  slave  of  all ;  —  a  social  system  in  which  iden- 
tity of  education  and  pursuits  would  impress  on  all  the  same 
unvarying  type  of  character,  to  the  destruction  of  that  multi- 
form development  of  human  nature,  those  manifold  unlike- 
nesses,  that  diversity  of  tastes  and  talents,  and  variety  of  intel- 
lectual points  of  view,  which,  by  presenting  to  each  innumer- 
able notions  that  he  could  not  have  conceived  of  himself,  are 
the  great  stimulus  to  intellect  and  the  main-spring  of  mental 
and  moral  progression.  The  perfection  of  social  arrangements 
would  be,  to  secure  to  all  persons  complete  independence  and 
freedom  of  action,  subject  to  no  restriction  but  that  of  not  do- 
ing injury  to  others ;  but  the  scheme  which  we  are  considering 
—  (that  of  an  equal  partition  of  wealth  and  of  labor)  —  abro- 
gates this  freedom  entirely,  and  places  every  action  of  every 
member  of  the  community  under  command." 

The  rate  of  wages  in  any  country  is  determined  by  the  com- 


OF    THE    POSSESSION    OF    WEALTH.  129 

petition  of  the  laborers  with  the  capitalists.  Which  shall  have 
the  advantage  in  the  competition  will  depend  on  the  relative 
numbers  of  the  two  parties,  and  will  be  in  an  inverse  ratio  to 
these  numbers.  In  England,  certainly,  the  capitalists  have  the 
advantage ;  their  immense  accumulations,  and  the  fewness  of 
those  who  can  compete  with  them  when  compared  with  the 
vast  number  of  those  who  subsist  entirely  upon  wages,  enable 
them  generally  to  dictate  their  own  terms,  and  to  keep  wages 
at  the  lowest  point  which  will  supply  the  workmen  with  the 
necessaries  of  life.  In  this  country,  it  is  quite  as  certain  that 
the  laborers  have  the  advantage ;  most  of  them  have  a  little 
capital  of  their  own,  on  which  they  could  subsist  for  a  time, 
or,  owing  to  the  great  demand  for  labor,  they  can  find  work  in 
other  establishments,  perhaps  in  other  trades.  Here,  frequent- 
ly, it  is  not  the  employer  who  discharges  the  workman  or  the 
domestic,  but  the  workman  or  the  domestic  who  discharges 
the  employer. 

Many  kinds  of  production  can  be  successfully  kept  up  only 
upon  a  large  scale  ;  for  the  larger  the  enterprise,  the  further  the 
division  of  labor  may  be  carried.  In  order  to  keep  such  enter- 
prises in  motion,  capital  must  be  aggregated  in  large  masses. 
In  England,  the  great  inequality  of  the  distribution  of  wealth 
allows  such  enterprises  to  be  managed  by  individuals  ;  in  most 
cases,  a  large  manufacturing  establishment  is  owned  either  by 
one  person,  or  by  a  firm  which  embraces  but  a  few  partners. 
In  the  United  States,  from  the  comparative  paucity  of  large 
private  fortunes,  such  an  establishment  is  generally  formed  and 
conducted  by  a  joini>stock  company,  —  which  is  comparatively 
a  modern  invention,  but  one  that,  from  its  democratic  charac- 
ter, is  peculiarly  suited  to  this  country,  and  to  the  wants  of  the 
age.  Many  small  capitalists,  by  clubbing  their  means,  can 
successfully  compete  with  men  of  vast  fortune,  —  an  undertak- 
ing which  would  otherwise  be  a  hopeless  one,  as  the  great  cap- 
italist can  live  through  reverses  of  trade,  commercial  crises, 
and  casualties,  which  would  ruin  one  who  had  little  or  noth- 
ing in  reserve.  So  consonant  are  these  joint-stock  companies 
to  the  genius  of  our  institutions  and  to  the  circumstances  of 
the  country,  that  they  have  multiplied  with  astonishing  rapid- 
ity. They  have  survived  even  the  necessity  which  called  them 
forth ;  for  as  large  private  fortunes  have  sprung  up  with  the 


130  ADVANTAGES    OF    THE    POSSESSION    OF    WEALTH. 

growth  of  national  opulence,  the  owners  of  them  have  pre- 
ferred to  distribute  their  capital  by  taking  stock  in  many  of 
these  associations,  rather  than  to  concentrate  it  upon  one  un- 
dertaking. The  risk  of  a  sweeping  calamity  is  thus  materially 
diminished.  I  know  of  nothing  more  irrational  than  the  com- 
mon prejudice  against  such  corporations.  They  are  true  sav- 
ings' banks,  in  which  the  common  laborer  not  infrequently 
invests  his  modest  savings,  and  shares  the  gains  of  his  wealthy 
employer,  instead  of  being  crashed  by  competition  with  him. 
It  is  not  unusual,  I  believe,  for  operatives  to  hold  stock  in  the 
very  manufactories  in  which  they  work  for  wages.  At  any 
rate,  the  savings'  bank,  to  which  they  first  confide  the  fruits  of 
their  economy,  often  invests  them  in  such  stock.  These  cor- 
porations allow  persons  of  very  moderate  means  to  participate 
in  enterprises  which,  in  other  countries,  are  conducted  exclu- 
sively by  the  rich.  The  occasional  failure  of  one  of  them  does 
not  bankrupt  many  of  the  stockholders,  whose  property,  in- 
vested in  other  ways,  is  left  untouched ;  and  as  this  seems  a 
hardship  to  the  creditor  who  has  lost  a  portion  of  his  debt,  he 
is  apt  to  declaim  against  those  who  are  rich,  and  still  do  not 
pay  what  they  owe.  But  his  accusation  is  unjust ;  he  who 
allows  such  an  institution  to  become  indebted  to  him,  trusts  it 
on  account  of  the  largeness  of  its  capital,  and  its  supposed  sol- 
vency. It  is  the  same  thing  for  him,  whether  he  trusts  an  indi- 
vidual or  a  corporation,  the  ground  of  his  confidence,  in  either 
case,  being  his  knowledge  of  the  fact  that  the  person  or  the  cor- 
poration began  business,  perhaps,  with  half  a  million  of  capi- 
tal, and  he  knows  not  that  this  capital  has  been  wasted  or  lost 
If  he  prefers,  he  may  trust  an  individual  who  is  supposed  to 
be  worth  only  $  50,000,  instead  of  a  corporation  reckoned  at 
ten  times  that  sum.  If  he  chooses  the  latter  course,  he  trusts 
the  corporation,  not  the  stockholders;  he  deliberately  prefers 
the  joint-stock  security  to  the  security  offered  by  individuals ; 
and,  consequently,  has  no  reason  to  complain  if  the  latter  do 
not  pay  him. 


THE  MALTHUSIAN  THEORY  OF  POPULATION.       131 


CHAPTER  XI. 

THE  MALTHUSIAN  THEORY  OF  POPULATION  CONSIDERED  AND 
REFUTED. 

THE  laws  of  Political  Economy,  for  the  most  part,  it  has 
been  remarked,  are  inferences  from  the  general  fact,  that  indi- 
viduals compete  with  each  other  in  the  pursuit  of  wealth. 
Rents,  profits,  wages,  prices,  are  determined  by  competition ; 
and  as  we  are  able  to  foresee  what  the  effects  of  competition 
will  be,  we  can  show  how  these  things  will  vary  under  given 
circumstances.  Thus,  profits  tend  to  an  equality  in  all  em- 
ployments, because  capitalists  compete  with  each  other,  and 
will  withdraw  their  capital  from  a  business  which  is  less  profit- 
able, to  invest  it  in  one  which  is  more  so  ;  this  influx  of  capital 
into  the  more  lucrative  employment  soon  reduces  the  rate  of 
profit  in  it  to  a  level  with  the  profits  in  other  employments. 
The  price  of  an  article,  of  which  there  is  a  given  quantity  in 
the  market,  is  determined  by  the  demand  for  it,  —  that  is,  by 
the  competition  of  the  buyers.  And  this  demand,  again,  regu- 
lates the  future  supply  of  that  article ;  for  as  the  competition 
of  the  buyers  becomes  warm,  the  price  is  enhanced,  the  profits 
of  those  who  produce  the  article  are  increased,  more  capital  is 
attracted  into  the  employment,  the  supply  is  enlarged,  and  the 
price  falls  again. 

These  principles  are  sufficiently  obvious,  and  if  there  were 
not  exceptional  cases,  if  their  application  was  not  modified  and 
restricted  by  a  crowd  of  circumstances,  political  economy 
might  be  called  a  demonstrative,  or  even  an  intuitive,  science. 
Its  maxims  might  all  be  taken  for  granted,  and  men  would  act 
upon  them  without  giving  themselves  the  trouble  of  enunciat- 
ing them  in  an  abstract  form.  But  there  are  numerous  excep- 
tions and  modifying  circumstances,  which  need  to  be  carefully 
considered  ;  and  in  this  chapter  I  propose  to  examine  the  most 
important  of  them. 

There  are  two  things  the  supply  of  which  is  not  regulated 
by  the  demand ;  and  they  are  two  very  important  things,  — 


132       THE  MALTHUSIAN  THEORY .  OF  POPULATION. 

namely,  land  and  population.  Our  wants  and  our  desires  do 
not,  in  these  two  cases,  create,  or  even  tend  to  create,  the 
means  of  satisfying  them ;  those  means  are  wholly  beyond  our 
control.  We  cannot  increase  the  quantity  of  surface  of  the 
habitable  globe ;  we  cannot,  at  will,  either  enlarge  the  popula- 
tion, or  put  limits  to  its  growth,  except  by  transgressing  the 
moral  laws  which  guard  the  sanctity  of  human  life.  It  is  con- 
ceivable that  the  well-being  of  a  community  may  be  greatly 
affected  by  these  two  inexorable  facts.  With  all  its  labor  and 
ingenuity,  it  cannot  materially  enlarge  the  limits  of  its  terri- 
tory, except  by  robbing  its  neighbors ;  it  may  reclaim  a  little 
land  from  the  waters  along  the  margin  of  a  river,  a  lake,  or  an 
ocean ;  but  it  is  obvious  that  its  power  in  this  respect  is  re- 
stricted within  very  narrow  limits.  And  if  its  population 
should  begin  to  waste  away,  or  to  increase  with  undue  and 
inconvenient  rapidity,  the  will  of  a  monarch  or  the  wishes  of  a 
people  would  not  suffice  to  arrest  either  its  decline  or  its 
growth.  Still  they  are  dependent  for  food  upon  the  products 
of  the  land,  the  amount  of  which  products  must  finally  be  lim- 
ited by  the  extent  of  surface  of  the  earth  ;  —  I  say,  must  finally 
be  so  limited,  because  improvements  in  agriculture,  the  dis- 
covery of  new  means  of  increasing  the  product  of  a  given  sur- 
face of  ground,  may  continually  push  the  limit  farther  off,  and 
open  the  way  almost  for  an  indefinite  increase  of  the  present 
population  of  the  globe. 

Yet  on  this  possible  or  conceivable  increase  of  the  numbers 
of  mankind,  united  with  the  fact  that  the  cultivable  surface  of 
the  earth  is  determined  by  fixed  boundaries,  which  cannot  be 
overleaped,  is  founded  the  celebrated  theory  of  Mr.  Malthus, 
and  the  doctrines  which  that  theory  is  usually  made  to  sup- 
port. We  are  not  at  liberty  to  put  aside  the  discussion  of  this 
theory,  as  if  it  were,  what  at  first  sight  it  appears  to  be,  a  mere 
speculation,  which  can  have  no  practical  importance  except  in 
a  contingency  certainly  very  remote,  and  which  may  never  be 
realized.  It  is  dwelt  upon  and  applied  by  nearly  all  the  Eng- 
lish economists  as  if  it  were  a  truth  of  great  moment,  immedi- 
ate in  its  bearings,  and  fruitful  in  results.  The  whole  subject 
of  political  economy  is  colored  with  it ;  it  affects  the  doctrine 
of  rent,  profits,  and  wages,  and  leads  to  inferences  in  respect 
to  each  of  them,  which  otherwise  would  be  immediately  re- 
jected. 


THE    MALTHUSIAN    THEORY    OF    POPULATION.  133 

The  professed  followers  of  Malthus  are  somewhat  dogmatic 
in  their  enunciation  of  the  doctrine,  and  altogether  impatient 
of  any  doubt  or  question  as  to  its  correctness.  This  positive- 
ness  arises  from  a  perception  of  the  unquestionable  correctness 
of  the  data  on  which  the  theory  is  founded,  and  of  the  chief 
features  of  the  theory  itself;  while  the  general  reluctance  to 
accept  it  proceeds  from  involuntary  dread  of  the  shocking  con- 
clusions that  it  has  been  made  to  support,  and  from  disgust  at 
the  consequences  of  its  practical  application.  The  doctrine  of 
Malthus  is  sometimes  understood,  in  its  extended  sense,  to 
comprise  the  whole  body  of  these  inferences  from  it,  together 
with  its  immediate  application  as  advice  to  men  for  the  gov- 
ernment of  their  conduct  and  the  regulation  of  society  ;  and  it 
is  when  thus  understood,  that  the  common  sense  and  natural 
feelings  of  mankind  shrink  from  it  with  that  strong  aversion 
which  the  followers  of  the  theory  are  apt  to  stigmatize  as  "  sen- 
timental horror."  Taken  in  the  more  restricted  meaning, 
which  is  always  used  when  the  theory  is  controverted  or  de- 
nied, Malthusianism  contains  only  one  or  two  truisms  about 
the  law  of  increase  that  is  common  to  the  human  rate  with  the 
whole  animal  creation,  which  have  no  practical  importance 
whatever,  except  for  the  purpose  to  which  they  were  first  ap- 
plied by  Malthus  himself,  —  namely,  to  confute  an  absurd 
speculation  by  Godwin  as  to  the  perfectibility  of  the  social 
state.  Upon  this  ambiguity  of  meaning  depends  the  whole 
controversy  as  to  the  law  of  population,  and  its  consequences 
upon  the  well-being  of  society. 

The  proposition  upon  which  the  whole  theory  rests  is  this, 
—  that  the  power  of  increase  of  any  race  of  animals,  the  hu- 
man species  included,  is  indefinite,  or  incapable  of  exhaustion ; 
and  if  it  were  exercised  to  the  utmost,  without  any  check  from 
external  circumstances  or  from  the  animal 's  power  of  self-control, 
the  earth  would  not  be  large  enough,  I  do  not  say  merely,  to 
afford  subsistence,  but  even  to  give  standing-room,  to  the 
beings  who  would  claim  a  place  upon  it.  The  capacity  of  in- 
crease necessarily  acts  in  a  geometrical  progression;  for  each 
pair  being  capable  of  procreation,  if  the  race,  under  certain  cir- 
cumstances, increases  within  thirty  years  from  ten  thousand  to 
twenty  thousand,  a  mere  continuance  of  the  same  cause  and 
the  same  circumstances  would  enlarge  the  number,  within  the 
12 


134       THE  MALTHUSIAN  THEORY  OF  POPULATION. 

next  thirty  years,  to  forty  thousand;  and  the  third  period 
would  carry  it  to  eighty  thousand.  For  example,  a  given  rate 
of  increase,  in  the  ten  years  from  1790  to  1800,  added  but 
1,200,000  to  the  white  population  of  this  country ;  but  from 
1830  to  1840,  the  same  rate  of  increase  added  3,600,000.  The 
population  was  more  than  doubled  from  1790  to  1820 ;  it  was 
again  more  than  doubled  from  1820  to  1850.  But  the  former 
doubling  added  less  than  five  millions  to  our  numbers,  while 
the  latter  doubling  added  over  ten  millions;  and  the  next 
doubling,  in  1880,  will  add  twenty  millions.  This  law  of  pos- 
sible increase  in  a  geometrical  progression  belongs  to  every 
species,  both  of  the  animal  and  vegetable  kingdom,  of  which 
we  have  any  knowledge  ;  it  is  an  immediate  and  logical  infer- 
ence from  the  self-evident  fact,  that  every  pair,  whether  of  the 
earliest  or  the  latest  generation,  whether  forming  part  of  a  very 
small  or  a  very  numerous  community,  is  equally  capable  of 
continuing  and  multiplying  its  kind.  Its  prolific  power  is  not 
at  all  affected  by  the  greater  or  smaller  number  of  its  fellow- 
creatures  which  may  be  already  in  being.  If  population 
should  go  on  in  this  manner  without  check,  it  is  evident  that, 
within  a  few  centuries,  the  earth  might  literally  be  overstocked 
with  human  beings  ;  if  they  should  stand  shoulder  to  shoulder, 
as  thickly  as  the  stalks  of  wheat  in  a  cultivated  field  at  harvest- 
time,  every  plain,  valley,  and  hill-top,  the  surface  even  of  every 
sea  and  ocean,  might  be  covered  with  them  ;  and  there  would 
still  be  a  call  for  room,  for  the  next  thirty  years  would  inevi- 
tably double  even  this  immense  assemblage,  which  we  have 
supposed  to  be  already  like  the  sands  of  the  sea  for  multitude. 
Observe  that  this  law  of  increase  by  geometrical  progression 
holds  good,  whether  the  annual  rate  of  increase  be  fast  or  slow. 
In  the  United  States,  for  instance,  the  annual  rate,  exclusive  of 
the  effects  of  immigration,  is  2.39  per  cent,  and,  as  a  conse- 
quence, the  population  is  doubled  in  little  over  32  years.  In 
France,  the  annual  rate  is  but  0.6  (six  tenths  of  one  per  cent), 
and  the  population,  therefore,  is  not  doubled  in  less  than  115 
years.  Still,  it  will  be  doubled  in  that  time,  and  therefore,  in 
230  years,  it  will  be  quadrupled,  thus  following  the  law  of  in- 
crease by  geometrical  progression,  if  it  increase  at  all.  The 
theory  of  Malthus  may  be  said  to  owe  its  plausibility,  in  great 
part,  to  the  fact  with  which  all  arithmeticians  are  very  famil- 


THE  MALTHUSIAN  THEORY  OF  POPULATION.       135 

iar,  that  a  number  increasing  by  geometrical  progression  with- 
in a  given  period  rises  to  a  very  formidable  amount.  Thus, 
McCulloch  calculates  that  the  population  of  the  United 
States,  if  the  present  annual  rate  of  increase  should  continue,  in 
one  century  from  this  time  will  amount  to  240  millions ;  and 
in  two  centuries,  that  is,  in  A.  D.  2050,  it  will  reach  the  very 
respectable  sum  of  3,840  millions,  or  nearly  five  times  the 
present  population  of  the  globe.  The  possibility  of  such  a  re- 
sult is  certainly  appalling,  and  at  first  sight,  it  may  appear  to 
justify  the  alarm  expressed  by  the  Malthusians. 

Even  without  taking  into  view  the  ultimate  check  to  the  in- 
crease of  the  numbers  of  mankind  that  will  be  found  in  the 
limited  extent  of  the  earth's  surface,  Mr.  Malthus  undertakes 
to  show,  that  the  means  of  subsistence,  under  the  most  favor- 
able circumstances,  cannot  increase  so  rapidly  as  the  number 
of  mouths  calling  for  food.  The  race  of  population  against 
food,  he  maintains,  is  like  that  of  Achilles  against  a  tortoise ; 
it  is  too  unequal,  whatever  may  be  the  advantage  at  first  pos- 
sessed by  the  weaker  party.  Whatever  may  be  the  present 
superfluity  of  sustenance,  or  of  the  means  of  increasing  suste- 
nance, population  multiplies  so  fast,  that  it  must  soon  overtake 
and  surpass  the  supply  of  nourishment.  Looking  at  first  only 
to  Great  Britain,  he  says :  —  "  If  it  be  allowed,  that,  by  the 
best  possible  policy  and  great  encouragements  to  agriculture, 
the  average  produce  of  the  island  could  be  doubled  in  the  first 
twenty-five  years,  it  will  be  allowing  probably  a  greater  in- 
crease than  could  with  reason  be  expected.  In  the  next 
twenty-five  years,  it  is  impossible  to  suppose  that  the  produce 
could  be  quadrupled.  It  would  be  contrary  to  all  our  knowl- 
edge of  the  properties  of  land.  The  improvement  of  the  bar- 
ren parts  would  be  a  work  of  time  and  labor ;  and  it  must  be 
evident  to  those  who  have  the  slightest  acquaintance  with  ag- 
ricultural subjects,  that,  in  proportion  as  cultivation  extended, 
the  additions  that  could  yearly  be  made  to  the  former  average 
produce  must  be  gradually  and  regularly  diminishing.  That 
we  may  be  the  better  able  to  compare  the  increase  of  popula- 
tion and  food,  let  us  make  a  supposition,  which,  without  pre- 
tending to  accuracy,  is  clearly  more  favorable  to  the  power  of 
production  in  the  earth  than  any  experience  we  have  had  of  its 
qualities  will  warrant. 


136       THE  MALTHUSIAN  THEORY  OF  POPULATION. 

"  Let  us  suppose  that  the  yearly  additions  which  might  be 
made  to  the  former  average  produce,  instead  of  decreasing, 
which  they  certainly  would  do,  were  to  remain  the  same ;  and 
that  the  produce  of  this  island  might  be  increased,  every 
twenty-five  years,  by  a  quantity  equal  to  what  it  at  present 
produces.  The  most  enthusiastic  speculator  cannot  suppose  a 
greater  increase  than  this.  In  a  few  centuries,  it  would  make 
every  acre  of  land  in  the  island  like  a  garden.  If  this  suppo- 
sition be  applied  to  the  whole  earth,  and  if  it  be  allowed  that 
the  subsistence  for  man  which  the  earth  affords  might  be  in- 
creased every  twenty-five  years  by  a  quantity  equal  to  what  it 
at  present  produces,  this  will  be  supposing  a  rate  of  increase 
much  greater  than  we  can  imagine  that  any  possible  exertions 
of  mankind  could  make  it.  It  may  fairly  be  pronounced, 
therefore,  that,  considering  the  present  average  state  of  the 
earth,  the  means  of  subsistence^  under  circumstances  the  most 
favorable  to  human  industry,  could  not  possibly  be  made  to  in- 
crease faster  than  in  an  arithmetical  ratio. 

"  The  necessary  effects  of  these  two  different  rates  of  in- 
crease, when  brought  together,  will  be  very  striking.  Let  us 
call  the  population  of  this  island  11  millions,  and  suppose  the 
present  produce  equal  to  the  easy  support  of  such  a  number. 
In  the  first  25  years,  the  population  would  be  22  millions,  and, 
the  food  being  also  doubled,  the  means  of  subsistence  would 
be  equal  to  this  increase.  In  the  next  25  years,  the  population 
would  be  44  millions,  and  the  means  of  subsistence  only  equal 
to  the  support  of  33  millions.  In  the  next  period,  the  population 
would  be  88  millions,  and  the  means  of  subsistence  just  equal 
to  the  support  of  half  that  number.  And  at  the  conclusion  of 
the  first  century,  the  population  would  be  176  millions,  and  the 
means  of  subsistence  only  equal  to  the  support  of  55  millions, 
leaving  a  population  of  121  millions  totally  unprovided  for. 

"  Taking  the  whole  earth  instead  of  this  island,  emigration 
would  of  course  be  excluded ;  and  supposing  the  present  pop- 
ulation equal  to  one  thousand  millions,  the  human  species 
would  increase  as  the  numbers  1,  2,  4,  8,  16,  32,  64,  128,  256, 
and  subsistence  as  1,  2,  3,  4,  5,  6,  7,  8,  9.  In  two  centuries, 
the  population  would  be  to  the  means  of  subsistence  as  256  to 
9 ;  in  three  centuries,  as  4,096  to  13 ;  and  in  two  thousand 
years,  the  difference  would  be  almost  incalculable." 


THE  MALTHUSIAN  THEORY  OF  POPULATION.       137 

We  cannot  find  much  comfort  in  the  fact,  that  the  human 
race  have  already  inhabited  this  globe  for  more  than  six  thou- 
sand years,  a  period  surely  long  enough,  with  the  aid  of  a  geo- 
metrical progression,  even  if  the  annual  rate  of  increase  had 
been  very  small,  but  regular,  to  have  brought  into  being  vastly 
more  than  the  poor  800  millions  who  now  stock  the  earth.  In 
former  times  and  in  barbarous  countries,  war,  pestilence,  fam- 
ine, tyranny,  and  all  the  other  ills  which  uncivilized  man  is 
heir  to,  not  only  kept  down  the  rate  of  increase,  but  often 
caused  the  population  to  retrograde.  Practically,  down  to  the 
present  day,  the  only  evil  which  has  been  felt  has  been,  not  an 
excess,  but  a  deficiency,  of  population.  Even  Spain,  once  the 
head  of  European  civilization,  had  ten  millions  of  inhabitants 
in  the  middle  of  the  sixteenth  century,  and  one  hundred  and 
twenty  years  afterwards,  it  had  only  six  millions.  The  classi- 
cal scholar  need  not  be  reminded  of  the  still  more  striking 
depopulation  of  Italy  under  the  Roman  emperors,  and,  at  a 
still  earlier  day,  of  the  provinces  which  now  constitute  Turkey 
in  Europe.  Asia  Minor  and  the  region  on  the  banks  of  the 
Tigris  and  Euphrates  were  teeming  with  inhabitants  twenty- 
five  centuries  ago,  while  they  are  now  very  sparsely  populated, 
and  probably  do  not  increase  at  all.  But  the  causes  which 
formerly  kept  down  the  natural  increase  of  the  people  have 
now,  in  all  civilized  communities,  in  a  great  measure  ceased 
to  act.  War  is,  at  present,  an  infrequent  and  much  less  de- 
structive calamity.  Epidemic  diseases  no  longer  lay  waste 
whole  provinces ;  remedies  for  them,  or  modes  of  preventing 
them,  have  been  discovered.  The  practice  of  vaccination 
alone,  by  robbing  that  frightful  disease,  the  small-pox,  of  its 
terrors,  has  added  some  years  to  the  average  duration  of  hu- 
man life.  The  greater  prevalence  of  cleanliness,  the  improve- 
ment of  the  diet,  dress,  lodgings,  and  other  accommodations  of 
the  mass  of  the  people,  and  the  drainage  of  bogs  and  marshes, 
by  which  agues  and  marsh  fevers  have  been  prevented,  with 
the  many  improvements  in  medical  and  surgical  science,  have 
materially  lessened  the  rate  of  mortality,  and  thus  caused  the 
population  to  increase  more  rapidly. 

A  comparison,  made  by  M.  de  Chateauneuf,  of  the  move- 
ment of  the  population  in  most  countries  of  Europe  from  1825 
to  1830  with  what  it  was  from  1775  to  1780,  an  interval  of 
12* 


138       THE  MALTHUSIAN  THEORY  OF  POPULATION. 

only  half  a  century,  supplies  some  striking  illustrations  of  this 
point.  Out  of  a  given  number  of  children  born  in  Europe, 
only  one  third,  says  the  author,  now  die  in  the  first  ten  years, 
while  formerly  one  half  died  within  that  period.  Fifty  years 
after  birth,  three  fourths  of  a  generation,  or  75  in  a  hundred, 
had  died ;  now,  only  thirteen  twentieths,  or  65  in  a  hundred, 
die  below  the  age  of  fifty.  Twenty-three  in  a  hundred,  instead 
of  only  eighteen,  now  reach  the  age  of  sixty.  The  proportion 
of  deaths  to  the  whole  population  is  now  as  one  to  forty ;  for- 
merly, it  was  as  high  as  one  to  thirty-two. 

These  facts  to  most  people  would  seem  to  afford  great 
cause  for  congratulation.  Human  life  has  been  made  longer ; 
disease  has  lost  a  portion  of  its  power,  or  has  been  conquered 
by  care  and  medical  science.  Population  is  kept  up,  not  mere- 
ly by  increasing  the  number  of  births,  but  by  lessening  the  pro- 
portion of  deaths  ;  thus,  among  a  given  number  of  inhabitants, 
there  are  fewer  children ;  and  hence  the  average  strength  and 
capacity,  the  productive  power  of  the  community,  is  increased. 
"  The  prevalent  opinion,"  says  McCulloch,  "  had  been,  that  an 
increase  of  population  was  the  most  decisive  mark  of  the  pros- 
perity of  a  state,  and  that  it  was  the  duty  of  government  to 
stimulate  its  increase,  by  encouraging  early  marriages,  and 
granting  exemptions  from  onerous  public  services  and  bestow- 
ing rewards  on  those  who  reared  the  greatest  number  of  chil- 
dren." Many  such  expedients  were  tried  at  Rome  under  the 
republic  and  the  empire. 

"  But  Mr.  Malthus,"  he  adds,  "  has  set  the  erroneous  nature 
of  this  policy  in  the  most  striking  point  of  view.  He  has 
shown,  by  a  careful  examination  of  the  state  of  countries  in 
every  stage  of  civilization,  and  placed  under  the  most  opposite 
circumstances,  that  the  number  of  inhabitants  is  everywhere 
proportioned  to  the  means  of  subsistence ;  that  the  tendency 
of  the  principle  of  increase  is  not  to  fall  below,  but  to  exceed, 
these  means ;  and  that,  consequently,  wherever  the  population 
is  not  kept  down  to  its  necessary  level  by  the  influence  of 
moral  restraint,  or  by  the  exercise  of  a  proper  degree  of  pru- 
dence and  forethought  in  the  formation  of  marriages,  it  must 
be  kept  down  by  the  influence  of  mortality  originating  in  vice, 
want,  and  misery." 

I  cannot  trace  out  here  all  the  gloomy  consequences  which 


THE  MALTHUSIAN  THEORY  OF  POPULATION.       139 

Malthus  and  his  followers  derive  from  his  theory ;  it  must  suf- 
fice to  indicate  a  few  of  them.  He  assumes  that  the  popula- 
tion in  every  country  in  Europe  has  already  increased  to  such 
a  degree,  that  it  is  actually  pressing  upon  the  means  of  subsist- 
ence ;  and  as  it  tends  still  to  multiply  faster  than  the  quantity 
of  food  can  be  increased,  the  low  wages  of  labor,  poverty,  dis- 
ease, crime,  and  an  average  duration  of  life  much  less  than  it 
might  be,  are  the  inevitable  consequences.  Stop  up  the  evil 
in  one  quarter,  and  it  must  break  out  in  another,  on  account 
of  the  prolific  power  which  is  in  reserve.  Put  an  end  to  war, 
and  famine,  or  some  epidemic  disease,  must  take  its  place,  and 
carry  off  yearly  as  many  victims  as  the  war  would  have  done. 
Stop  the  ravages  of  the  small-pox  by  vaccination,  and  the  Asi- 
atic cholera,  or  some  other  disease,  must  appear  to  scourge 
mankind  with  an  equivalent  number  of  deaths,  if  they  will  not 
learn  prudence  enough  to  diminish  the  number  of  marriages 
and  births.  The  vessel  is  already  full,  and  it  is  also  fed  from 
beneath  with  perennial  springs.  Check  the  overflow  in  one 
quarter,  therefore,  and  it  must  escape  in  another.  I  will  quote 
Mr.  Malthus's  own  words.  "  I  feel  not  the  slightest  doubt," 
he  says,  "  that  if  the  introduction  of  the  cow-pox  should  extir- 
pate the  small-pox,  and  yet  the  number  of  marriages  continue 
the  same,  we  shall  find  a  very  perceptible  difference  in  the  in- 
creased mortality  of  some  other  disease."  Wages,  it  is  further 
said,  depend  on  the  proportion  between  the  numbers  of  the 
laboring  class  and  the  capital  which  is  devoted  to  paying  for 
labor.  As  the  number  of  those  seeking  employment  increases, 
—  and  it  always  tends,  like  a  depressed  spring,  to  increase, — 
the  laborers  compete  with  each  other  in  offering  to  work  at  low 
prices,  and  wages  inevitably  fall.  Vainly  does  private  munifi- 
cence or  public  liberality  seek  to  prevent  this  evil.  Interfer- 
ence, in  fact,  only  does  harm  ;  if  the  laborer  can  look  to  a  poor 
fund,  or  to  private  charity,  to  provide  against  the  effects  of  his 
imprudence,  he  will  never  learn  to  be  prudent.  Leave  him 
alone,  then,  say  the  Malthusians,  to  be  chastised  by  fever, 
hunger,  and  misery,  into  a  sense  of  his  obligation  to  society  to 
refrain  from  increasing  the  number  of  his  class.  Let  not  the 
possession  of  a  starving  family  constitute  an  additional  claim 
for  him  who  begs  your  charity ;  rather  let  it  be  his  punishment 
To  devise  means  for  relieving  the  present  frightful  condition 


140  THE    MALTHUSIAN    THEORY    OF    POPULATION. 

of  the  laboring  poor  in  England  and  Ireland  is  a  hopeless  and 
insoluble  problem.  The  best  advice  which  the  leading  econo- 
mist of  this  school  can  give  his  countrymen,  in  respect  to  this 
subject,  is,  that  they  should  "fold  their  arms,  and  leave  the  di- 
nouement  to  time  and  Providence." 

The  most  effectual  means  of  keeping  down  the  increase  of 
population,  it  is  said,  is  to  raise  the  laborer's  ideas  of  what  is 
necessary  for  his  maintenance.  Thus,  says  Mr.  Thomson,  "  a 
laborer  in  Ireland  will  live  and  bring  up  a  family  on  potatoes ; 
a  laborer  in  England  will  see  the  world  unpeopled  first.  Eng- 
lishmen have  the  physical  capability  of  living  on  potatoes  as 
much  as  other  men  ;  but  fortunately  they  have  not  the  habit ; 
and  though  it  might  be  wrong  to  say  that  they  would  starve 
first  in  their  own  persons,  they  will  utterly  refuse  to  multiply 
upon  such  diet,  the  effect  of  which  on  population  is  ultimately 
the  same.  The  Englishman  will  not  live  and  bring  up  a  fam- 
ily on  potatoes ;  because,  though  he  may  consent  to  live  on 
them  when  he  can  positively  procure  nothing  else,  habit, 
custom,  the  opinion  of  those  around  him,  have  made  it  in  his 
eyes  contemptible,  irrational,  absurd,  for  a  man  to  be  living  on 
potatoes  when  he  has  the  opportunity  of  getting  anything  bet- 
ter. In  his  hours  of  prosperity,  therefore,  he  will  to  a  cer- 
tainty solace  himself  upon  bacon,  and  most  probably  venture 
upon  beef;  and  as  this  absorbs  a  greater  portion  of  his  income 
in  what  he  views  as  necessary  to  his  individual  existence,  it 
proportionaUy  reduces  his  disposition  to  burden  himself  with 
new  mouths.  If  the  Irishman  had  the  prospect  of  all  this  ba- 
con and  beef,  he  would  view  it  as  convertible  into  potatoes  for 
a  family  like  a  patriarch's.  The  Englishman  thinks  it  but  de- 
cency to  swallow  all,  and  omits  the  family." 

I  have  endeavored  to  give  as  full  a  view  as  possible  of  the 
theory  of  Malthus  and  its  consequences,  without  disguising 
the  force  of  any  of  the  considerations  that  may  be  adduced  in 
its  support.  Without  accusing  it  of  any  demoralizing  tenden- 
cies, it  must  be  admitted  to  present  a  very  gloomy  view  of  the 
condition  of  the  human  race,  and  of  the  ways  of  Providence 
with  man.  It  justifies  the  stoical  indifference  with  which 
many  regard  the  woes  of  their  brethren,  and  the  evils  of  the 
social  state,  when  they  wish  to  avoid  any  responsibility  for 
their  continuance,  or  when  they  despair  of  being  able  to  re- 


THE  MALTHUSIAN  THEORY  OF  POPULATION.       141 

lieve  them.  I  hope  to  prove  satisfactorily,  that  the  doctrine 
itself  is  a  mere  hypothetical  speculation,  having  no  relation  to 
the  times  in  which  we  live,  or  to  any  which  are  near  at  hand. 
In  those  facts  which  appear  so  alarming  to  the  Malthusians,  I 
see  only  indications  of  a  beneficent  arrangement  of  Providence, 
by  which  it  is  ordained  that  the  barbarous  races  which  now 
tenant  the  earth  should  waste  away  and  finally  disappear, 
while  civilized  men  are  not  only  to  multiply,  but  to  spread, 
till  the  farthest  corners  of  the  earth  shall  be  given  to  them  for 
a  habitation. 

I  begin  with  the  proposition,  that  the  power  of  the  earth  to 
afford  sustenance  is  now  so  far  in  advance  of  the  actual  num- 
bers of  mankind,  that  no  probable,  and  in  fact  no  possible,  in- 
crease of  those  numbers,  not  even  by  a  geometrical  progression, 
can  create  a  general  and  permanent  scarcity  for  centuries  to 
come.  The  great  and  palpable  error  of  the  Malthusians  con- 
sists in  assuming,  without  a  particle  of  evidence,  nay,  when 
all  the  evidence  tends  to  the  contrary,  that  the  time  has  already 
come,  that  population  has  reached  its  limits,  that  there  is  even 
now  a  deficiency  of  food,  so  that  the  only  present  mode  of  in- 
creasing the  happiness  of  the  lower  classes  is  to  lessen  their 
numbers.  Malthusianism  in  its  simplest  form  is  only  the  ex- 
pression of  a  law  that  belongs  both  to  the  animal  and  vegeta- 
ble kingdom,  and  its  truth  is  undeniable ;  yet  we  say  that  it 
has  no  applicability  to  the  present  state  of  affairs,  and  we  have 
no  immediate  concern  in  establishing  its  truth  or  falsehood. 
If  a  speculatist  in  natural  philosophy  should  undertake  to  de- 
monstrate that  the  sun  was  gradually  but  surely  expending  its 
stock  of  light  and  heat,  constant  drafts  being  made  upon  it  in 
those  immense  floods  of  radiance  and  warmth  with  which  it 
now  inundates  every  part  of  the  solar  system,  and  there  being 
no  means  of  supplying  the  waste,  so  that  the  time  must  inev- 
itably come,  in  the  lapse  of  ages,  when  this  now  glorious  orb 
will  appear  utterly  dark  and  cold,  we  should  listen  to  his  evi- 
dence certainly  with  attention  and  respect,  as  to  the  announce- 
ment of  a  curious  truth  in  science ;  but  if  any  individual,  on 
the  strength  of  this  supposed  discovery,  should  preach  up  the 
instant  necessity  of  economizing  with  the  utmost  care  our  fuel 
and  oil,  should  advise  people  to  go  to  bed  at  sundown  in  order 
to  save  candles,  and  to  warm  themselves  by  flannels  instead 


142       THE  MALTHUSIAN  THEORY  OF  POPULATION. 

of  fires,  his  friends  would  reasonably  be  alarmed  for  his  sanity, 
and  would  urge  him  to  retire  for  a  while  to  a  mad-house. 

The  absurdity  of  talking  about  the  necessary  pressure  of 
population  upon  the  means  of  subsistence,  as  an  explanation 
of  the  evils  with  which  society  is  now  oppressed,  was  well  ex- 
posed, many  years  ago,  by  Colonel  Thompson.  "  If  it  should 
be  urged,"  he  says,  "that  there  must  always  come  a  time  when 
population  will  press  against  food,  and  therefore  there  is  no 
use  in  attempting  to  escape  it ;  this  would  be  like  urging  that 
there  is  no  use  in  a  man's  escaping  from  murder  now,  because 
he  will  not  be  immortal  afterwards.  There  is  all  the  difference 
in  the  world  between  enduring  an  evil  by  the  will  of  Provi- 
dence, and  by  the  act  of  man.  Human  life,  in  the  whole,  is 
but  the  procrastination  of  death ;  but  that  is  no  reason  why 
men  should  die  just  now,  for  other  men's  convenience.  There 
may  come  a  time  when  there  will  be  no  coal  to  burn,  no  iron 
to  make  tools,  and  perhaps  no  salt  left  in  the  sea ;  but  this  is 
no  reason  why  men  should  not  make  something  of  the  interval 
which  must  intervene.  The  time  when  population  will  press 
irremediably  against  food  must,  to  a  great  manufacturing  and 
naval  people,  be  almost  as  remote  as  the  time  when  there  will 
be  no  salt  left  in  the  sea.  And  come  when  it  may,  it  must  al- 
ways come  gradually,  which  is  by  itself  no  small  diminution 
of  the  mischief." 

The  average  density  of  population  in  Europe,  in  which 
quarter  of  the  globe  alone  any  excess  of  numbers  is  to  be 
feared  for  centuries  to  come,  does  not  amount  to  70  persons 
to  the  square  mile.  The  Europeans,  then,  on  an  average,  are 
not  quite  so  crowded  as  are  the  inhabitants  of  Spain,  a  coun- 
try the  population  of  which  might  be  increased  fourfold  before 
it  would  be  as  thickly  peopled  even  as  England.  Belgium  has 
the  densest  population  of  any  state  on  the  Continent  of  consid- 
erable magnitude,  the  average  (in  1846)  amounting  to  at  least 
344  persons  to  the  square  mile.  Great  Britain  and  Ireland,  in 
respect  to  which  the  complaints  of  over-population  have  been 
loudest  and  most  frequent,  had  but  235  to  the  square  mile  in 
1851,  so  that  the  population  might  be  increased  nearly  50  per 
cent  before  these  countries  would  be  as  densely  peopled  as 
Belgium.  Taking  all  Europe  together,  the  population  might 
be  five  times  as  great  as  it  is  now,  before  the  inhabitants 


THE  MALTHUSIAN  THEORY  OF  POPULATION.       143 

would  be  as  crowded  as  they  are  already  in  Belgium.  Sup- 
posing that  the  average  rate  of  increase  for  all  Europe  were  as 
high  as  it  now  is  in  France,  a  supposition  which  is  certainly 
beyond  the  truth,  more  than  three  centuries  must  elapse  before 
the  Continent  could  be  thus  peopled,  even  if  no  allowance  were 
made  for  emigration  and  the  gradual  lessening  of  the  rates  of 
increase  as  the  population  becomes  more  dense.  Making  al- 
lowance for  these  checks,  the  period  must  be  increased  to  at 
least  five  centuries.  An  evil  which  is  at  least  five  hundred 
years  distant  from  us,  need  not  excite  much  alarm  in  the  pres- 
ent generation.  Before  this  period  elapses,  it  has  been  calcu- 
lated that  the  stock  of  bituminous  coal  in  England  may  be 
exhausted,  —  an  article  on  which  British  power  and  wealth 
unquestionably  depend.  Yet  we  have  not  heard  any  fear  ex- 
pressed on  this  score,  nor  has  economy  in  the  consumption  of 
coal  been  recommended,  though  such  strenuous  efforts  have 
been  made  to  deter  the  laboring  poor  from  forming  early  and 
imprudent  marriages. 

Is  there  any  evidence,  then,  that  Belgium  is  over-peopled, 
the  country  which  is  already  in  the  condition  that  all  Europe 
fears  it  will  arrive  at  some  five  centuries  hence?  By  no 
means.  The  information  which  shows  that  it  is  not,  I  derive 
from  McCulloch,  one  of  the  ablest  statisticians  of  Europe,  and 
who  is  himself  an  ardent  upholder  of  the  theory  of  Malthus,  so 
that  his  testimony  can  be  received  without  ^question.  "  Al- 
though the  cultivation  of  the  earth  in  this  kingdom  is  carried 
to  a  great  extent,  one  eleventh  of  the  surface  still  remains 
uncultivated ;  one  eighth  consists  of  grass  lands,  and  the  arable 
lands  occupy  one  hah0.  The  very  large  produce  obtained  by 
the  Flemish  farmer  is  solely  attributable  to  indefatigable  in- 
dustry ;  for  the  soil  is  naturally  poor,  and  the  climate  is  by  no 
means  especially  favorable,  the  winters  being  longer  and  more 
severe  than  in  England.  The  most  fertile  districts  in  the 
country  were  formerly  alluvial  morasses,  which  have  been 
drained  and  embanked,  or  have  been  gained  entirely  from  the 
bed  of  the  ocean,  against  which  they  are  now  protected  by 
dykes.  The  provinces  of  West  and  East  Flanders  and  Hai- 
nault  form  a  far-stretching  plain,  of  which  the  luxuriant  vege- 
tation indicates  the  indefatigable  care  and  labor  bestowed 
upon  its  cultivation;  for  the  natural  soil  consists  almost 


144  THE    MALTHUSIAN    THEORY    OF    POPULATION. 

wholly  of  barren  sand,  and  its  great  fertility  is  entirely  the 
result  of  very  skilful  management."  The  account  of  the  nat- 
ural condition  of  most  of  the  other  portions  of  the  country  is 
but  little  more  favorable.  "  The  central  part  of  the  kingdom 
includes  much  of  the  richest  portion  of  the  soil ;  but  it  does 
not,  on  the  whole,  exceed  the  average  fertility  of  the  inland 
counties  of  England,  and  must  decidedly  be  considered  infe- 
rior to  the  rich  alluvial  soils  denominated  the  carses  of  Scot- 
land. But  taking  the  whole  country  together,  the  soil,  artifi- 
cially enriched,  produces  more  than  double  the  quantity  of 
corn  required  for  the  consumption  of  its  inhabitants,  and  agri- 
cultural produce  is  exported  to  a  great  extent."  * 

Looking,  therefore,  merely  to  the  capacity  of  the  earth  to 
afford  sustenance,  it  appears  that  the  most  densely  peopled 
country  in  Europe,  and  one  by  no  means  richly  favored  in  re- 
spect to  the  natural  properties  of  its  soil,  is  not  yet  more  than 
half  populated ;  and  still  several  centuries  must  elapse  before 
all  Europe  can  be  as  densely  populated  as  Belgium.  Turning 
to  America,  we  find  the  basin  of  one  great  river,  the  Mississippi, 
capable  of  supporting  as  many  inhabitants  as  now  occupy  all 
Europe,  though  the  actual  population  of  the  whole  United 
States  does  not  equal  one  tenth  part  of  that  number.  If  we 
add  the  tropical  and  southern  portions  of  the  great  American 
continent,  and  then  go  to  the  Antipodes  to  look  at  Australia, 
the  area  of  which  does  not  fall  far  short  of  that  of  all  Europe, 
—  if  we  consider  what  an  insignificant  fraction  of  these  vast 
regions  is  yet  tenanted  by  civilized  man,  —  we  are  obliged  to 
give  up  our  statistical  calculations  in  despair ;  the  imagination 
fails  to  grasp  the  possible  number  of  human  beings  whom  the 
earth  might  support,  or  the  number  of  years  that  must  elapse 
(judging  from  the  world's  history  thus  far)  before  this  ex- 
tent of  space  can  be  fully  peopled,  and  there  can  be  a  just 
call  for  room. 

Till  this  limit  is  approached,  —  that  is,  for  several  centuries 
yet  to  come,  —  every  birth  adds  something,  or  might  add  some- 
thing, to  the  possible  surplus  of  food.  If  there  are  more 
mouths  to  feed,  there  are  more  hands  to  feed  them  with ;  if 

*  These  statements  are  selected  from  the  article  on  Belgium  in  McCulloch's  Go*- 
graphical  Dictionary. 


THE    MALTHUSIAN    THEORY    OF    POPULATION.  145 

there  is  more  work  to  be  done,  there  are  more  laborers  to  do 
it.  It  is  demonstrable  that,  even  in  Ireland,  (until  its  popula- 
tion shall  be  thrice  as  great  as  it  is  at  present,)  since  the  labor 
of  one  person  upon  the  soil  must  produce  more  than  is  neces- 
sary for  his  personal  subsistence,  the  more  hands  there  are  em- 
ployed in  agriculture,  the  greater  will  be  the  surplus  for  those 
engaged  in  other  occupations.  That  the  surplus  will  not  in- 
crease in  the  same  ratio  with  the  number  of  agricultural  labor- 
ers, is  a  fact  of  no  importance  ;  before  the  growth  of  the  popu- 
lation can  be  checked  by  absolute  deficiency  of  food,  there 
must  cease  to  be  any  surplus,  and  the  earth  must  not  yield 
enough  even  for  the  subsistence  of  him  who  cultivates  it.  We 
may  have  as  much  dread  of  this  contingency  as  of  the  sun's 
expending  its  whole  stock  of  light  and  heat,  or  of  there  being 
no  salt  left  in  the  sea. 

Ireland  is  an  instance  directly  in  point  to  bring  the  doctrine 
of  the  Malthusians  to  a  test.  They  say  that  the  island  is  over- 
peopled, and  that  their  excessive  number  is  the  cause  of  the 
wretchedness  of  its  inhabitants.  But  in  ordinary  years,  Ire- 
land not  only  supplies  food  for  her  whole  population,  but  her 
exports  of  the  cereal  grains  alone  amount  to  five  millions  ster- 
ling, and  of  meat,  butter,  and  cheese  to  at  least  half  as  much 
more.  It  is  absurd,  then,  to  say  that  the  population  is  here 
pressing  against  the  means  of  subsistence  ;  and  if  the  doctrine 
does  not  hold  true  in  this  case,  to  what  country  in  the  civilized 
world  is  it  applicable  ?  Another  view  of  the  matter  leads  to 
the  same  result.  If  the  land  were  parcelled  out,  and  the  same 
modes  of  cultivation  pursued,  in  Ireland  as  in  the  Netherlands, 
the  former  country  being  naturally  far  the  more  fertile  of  the 
two,  it  is  demonstrable  that  the  soil  would  furnish  abundance 
of  food  for  twenty-six  millions  of  inhabitants,  instead  of  sup- 
porting, as  it  now  does,  little  over  six  millions,  one  half  of 
whom,  five  years  ago,  were  on  the  brink  of  starvation. 

Barbarous,  and  even  half-civilized  nations,  it  is  admitted  on 
all  hands,  are  in  no  danger  of  multiplying  too  rapidly ;  the  law 
of  a  geometrical  progression  is  not  applicable  to  them ;  they 
do  not  increase,  but  decrease.  The  aborigines  of  a  country, 
wherever  they  come  in  contact  with  civilization,  melt  away  as 
ice  and  snow  do  at  the  approach  of  summer.  So  it  has  been 
with  the  Indians  of  our  own  continent,  with  the  natives  of 
13 


146       THE  MALTHUSIAN  THEORY  OF  POPULATION. 

Australia,  the  Hottentots  of  South  Africa,  the  Moors  of  Bar- 
bary,  and  the  natives  of  the  Pacific  isles ;  and  so  it  must  al- 
ways be.  War,  disease,  vice,  and  ignorance,  which  are  neces- 
sary accompaniments  of  the  savage  state,  are  destructive  of 
human  life ;  they  do  not  allow  the  population  to  increase,  they 
seldom  allow  it  to  hold  its  own.  Go  a  little  higher  in  the  so- 
cial scale,  and  this  result  is  but  little  modified.  The  Turks, 
the  Arabs,  the  Tartars,  the  Hindoos,  are  probably  not  so  nu- 
merous as  they  were  a  century  ago.  The  countries  which 
now  form  Turkey  in  Europe  and  Turkey  in  Asia  were  more 
populous  two  or  three  thousand  years  ago,  than  they  are  at  the 
present  day.  The  wasting  away  of  such  tribes  may  be,  in 
some  cases,  the  consequence  of  a  deficiency  of  food  ;  but  it  is 
certainly  not  the  result  of  over-population ;  for  the  civilized 
men  who  come  to  occupy  their  places,  obtain  from  the  same 
soil  abundance  of  food  for  a  population  larger  than  theirs  by 
twenty  or  a  hundred  fold.  The  North  American  Indians, 
when  their  hunting-grounds  generally  exceeded  ten  square 
miles  for  every  member  of  the  tribe,  and  the  soil  was  often 
of  great  fertility,  were  sometimes  severely  pinched  by  famine. 
For  this  reason,  infanticide  was  not  infrequent  among  them, 
and  life  was  shortened  by  privation  and  hardship.  So  far, 
then,  as  the  mere  lack  of  food  proves  excess  of  numbers,  the 
Malthusians  might  as  well  have  preached  abstinence  from  mar- 
riage to  them  as  to  the  Irish.  In  both  cases,  the  bounty  of 
Providence  is  not  exhausted,  but  men  do  not  make  proper  use 
of  the  means  that  are  within  their  reach  for  satisfying  their 
bodily  wants ;  it  matters  not  whether  they  leave  the  soil  un- 
tilled  altogether,  or  send  a  large  portion  of  its  product  out  of 
the  country  while  millions  are  famishing  at  home. 

Civilized  nations,  let  them  multiply  as  fast  as  they  may,  do 
not  devote  their  attention  chiefly,  or  even  in  great  part,  to  the 
supply  of  food,  but  to  the  pursuit  of  wealth.  Exchangeable 
value  in  general,  not  the  means  of  subsistence  even  in  partic- 
ular, is  the  object  of  their  endeavors.  What  matters  it  to  me, 
that  my  neighbor  owns  and  cultivates  a  large  extent  of  fertile 
land,  while  I  do  not  own  a  square  foot,  provided  that  I  have 
plenty  of  money  in  my  purse  ?  With  that  money,  I  know,  I 
can  purchase  food  of  my  neighbor,  that  I  can  even  lay  the  fer- 
tility of  both  Indies  and  of  the  farthest  corners  of  the  earth 


THE  MALTHUSIAN  THEORY  OF  POPULATION.       147 

under  contribution  to  supply  my  personal  wants.  Communi- 
ties and  nations  act,  in  this  respect,  just  like  individuals.  If  it 
should  be  more  profitable  to  them  to  devote  their  arable  lands 
to  other  purposes  than  those  of  husbandry,  they  will  do  so 
without  hesitation,  being  confident  that  they  will  be  supplied 
from  other  lands.  The  inhabitants  of  the  island  of  Barbadoes, 
with  a  soil  abundantly  capable  of  supplying  their  wants,  ac- 
tually devote  all  their  ground  and  labor  to  the  cultivation  of 
sugar,  cotton,  and  a  few  tropical  products,  which  they  export, 
while  they  import  all  their  provisions,  their  wheat,  pickled  fish 
and  salted  meat,  butter,  cheese,  &c.,  from  the  United  States. 
They  do  not,  on  their  own  ground,  raise  food  enough  for  the 
hundredth  part  of  their  own  consumption.  What  they  do  al- 
most exclusively,  all  commercial  and  manufacturing  commu- 
nities do  to  a  certain  extent.  They  devote  their  energies  to 
getting  wealth,  and  buy  food  whencesoever  it  may  come  to 
them,  being  wholly  indifferent  whether  it  is  raised  in  their  own 
or  in  foreign  lands.  Thus,  in  Massachusetts,  as  already  re- 
marked, we  do  not  raise  wheat  and  cattle  enough  for  our  own 
consumption,  while  our  population,  as  a  Malthusian  would 
say,  is  increasing  with  frightful  rapidity.  But  should  we  be 
justified,  then,  in  abrogating  our  laws  for  the  support  of  pau- 
pers, on  the  ground  that  the  number  of  the  people  already  ex- 
ceeded the  capacity  of  the  soil  to  sustain  them,  and  that  the 
poor  must  consequently  be  chastised  into  the  system  of  pru- 
dent marriages  ? 

Such  a  plea  would  appear  ridiculous  here ;  is  it  any  more 
reasonable  in  Great  Britain  ?  Since  the  abolition  of  the  corn 
laws,  and  of  other  oppressive  charges  in  the  British  tariff,  the 
market  price  of  the  chief  articles  of  provision  is  not,  and  can- 
not be,  ten  per  cent  higher  in  Liverpool  than  in  Boston ;  and 
the  supply  of  these  articles  (which  is  the  only  point  that  we 
need  consider  here)  is  just  as  abundant  in  the  former  place  as 
the  latter.  The  farmers  of  Ohio,  Wisconsin,  and  Iowa  would 
rejoice  at  an  opportunity  to  supply  all  England  and  Ireland 
with  all  the  wheat  that  they  require.  A  failure  of  the  English 
crops,  or  a  multiplication  of  the  English  people,  is  certainly  no 
misfortune  to  us,  though  we  have  to  supply  the  food  which  in 
that  case  becomes  necessary ;  is  it  then  a  misfortune  to  the 
English,  —  a  misfortune,  I  mean,  of  such  a  character  as  to  jus- 


148        THE  MALTHUSIAN  THEORY  OF  POPULATION. 

tify  them  in  complaining  of  the  ways  of  Providence  for  send- 
ing more  human  beings  upon  the  earth  than  the  earth  is  capa- 
ble of  supporting  ?  It  is  a  calamity,  unquestionably,  in  regard 
to  the  acquisition  of  wealth;  for  the  necessity  of  buying  so 
much  food  diminishes  their  store  of  wealth.  But  it  is  not  a 
calamity  in  regard  to  the  supply  of  food,  or  to  the  limited  ex- 
tent and  fertility  of  the  earth's  surface.  Man,  not  Providence, 
is  in  fault.  Great  Britain  is  obliged  to  buy  all  her  cotton,  an 
article  of  almost  as  universal  consumption  as  wheat ;  yet  this 
fact,  being  one  to  which  she  is  habituated,  is  not  made  a  sub- 
ject of  complaint.  Cotton,  however,  can  be  produced  to  ad- 
vantage only  in  a  few  regions,  of  comparatively  limited  extent ; 
while  the  cereal  grains  can  be  raised  over  three  fourths  of  the 
surface  of  the  habitable  globe.  Should  a  new  process  of  agri- 
culture be  discovered,  by  which  cotton  could  be  grown  over 
all  England  with  so  much  facility  and  profit  that  the  yearly 
returns  of  the  farmer  would  be  twice  as  great  as  by  raising 
wheat,  it  is  very  certain  that  no  wheat  would  then  be  raised 
on  English  ground,  and  yet  there  would  be  no  deficiency  in 
the  supply  of  that  necessary  article.  In  this  case,  she  would 
raise  her  cotton,  and  buy  her  wheat;  now,  she  raises  her 
wheat,  and  buys  her  cotton. 

We  can  now  see  with  sufficient  distinctness  the  two  great 
facts  which  afford  a  complete  refutation  of  Malthusianism. 
The  first  is,  that  the  limit  of  population  in  any  country  what- 
ever is,  not  the  number  of  people  which  the  soil  of  that  country 
alone  will  supply  with  food,  but  the  number  which  the  surface 
of  the  whole  earth  is  capable  of  feeding ;  and  it  is  a  matter  of 
demonstration,  that  this  limit  cannot  even  be  approached  for 
many  centuries.  The  inability  of  England  alone,  or  of  Ireland 
alone,  to  supply  her  teeming  population  with  food,  is  a  fact  of 
no  more  importance  in  the  world's  history,  than  the  inability 
of  the  city  of  London  alone  to  supply  her  two  millions  of  peo- 
ple with  farming  produce  from  her  own  soil.  London  taxes 
all  the  counties  of  England  for  sustenance ;  England  taxes  all 
the  countries  of  the  earth  for  sustenance  ;  —  I  cannot  see  any 
difference  between  the  two  cases. 

Then,  secondly,  I  say  that  the  practical  or  actual  limit  to  the 
growth  of  population  in  every  case  is  the  limit  to  the  increase 
and  distribution,  not  of  food,  but  of  wealth.  Among  civilized 


THE  MALTHUSIAN  THEORY  OF  POPULATION.       149 

men  in  modern  times,  a  famine  is  created,  not  by  any  absolute 
deficiency  in  the  supply  of  food,  but  because  the  poorer  classes 
have  no  money  to  buy  it  with.  As  every  human  being  is  an 
implement  for  the  production  of  wealth,  a  means  of  enlarging 
the  aggregate  national  product,  or  the  amount  of  exchangeable 
values  belonging  to  a  nation,  the  increase  of  population  is  not 
a  cause  of  scarcity  of  food,  but  a  preservative  against  it.  It 
makes  no  difference  whether  the  mass  of  the  people  are  en- 
gaged in  hammering  iron,  spinning  cotton,  or  raising  wheat ; 
for  the  product  in  each  of  these  cases  either  is  food,  or  is  ex- 
changeable for  food,  which  amounts  to  precisely  the  same 
thing.  Commerce  distributes  equally  all  products  for  which 
there  is  an  equal  demand.  In  respect  to  the  supply  and  the 
price  of  food,  New  York  has  no  advantage  over  Liverpool,  be- 
cause there  is  a  wide,  fertile,  and  only  half-tenanted  region 
lying  behind  the  former,  while  the  latter  backs  upon  a  land 
teeming  with  poverty-stricken  millions ;  for  the  supply,  whence- 
soever  obtained,  is  distributed  between  the  two  places  in  exact 
proportion  to  the  demand  for  it  in  each ;  and  if  the  price  in 
Liverpool  is  higher  because  the  grain  must  be  brought  thither 
from  New  York,  the  price  in  New  York  is  higher  because  the 
grain  must  be  carried  thence  to  Liverpool.  Our  crops  did  not 
fail  in  1847,  but  the  price  of  grain,  in  our  seaport  towns,  and 
even  in  our  back  country,  rose  in  as  great  proportion  as  in  Ire- 
land and  Scotland.  But  all  classes  of  our  people  were  still 
able  to  buy  the  grain,  even  at  the  advanced  price ;  while  one 
half  of  the  Irish  people,  and  perhaps  one  sixth  of  the  Scotch, 
were  too  poor  to  obtain  it  at  this  price,  and  therefore  they  hun- 
gered, and  very  many  of  them  died  of  starvation. 

This  is  the  true  explanation  of  the  famine  of  1847  in  the 
British  Isles.  The  march  of  civilization,  the  extension  of  trade, 
the  facilities  of  transport,  and  the  consequent  ease  of  supplying 
the  failure  of  the  crops  in  one  country  by  the  superabundance 
of  the  harvest  in  another,  have  made  the  recurrence  of  a  proper 
famine,  in  modern  times,  impossible.  By  a  proper  famine,  I 
mean  such  an  absolute  deficiency  of  food,  and  impossibility  of 
obtaining  it  on  any  terms,  as  is  suffered  by  the  garrison  of  a 
besieged  town,  or  by  the  crew  of  a  wrecked  ship.  It  is  not  in 
the  scheme  of  Providence,  as  hitherto  revealed  to  man,  that 
harvests  should  fail  all  the  world  over  at  the  same  time,  or 
13* 


150       THE  MALTHUSIAN  THEORY  OF  POPULATION. 

even  for  the  failure  to  be  so  general  that  the  aggregate  product 
should  not  suffice  —  perhaps  with  some  scrimping  and  some 
hardship  —  for  the  aggregate  want.  A  semi-barbarous  nation 
in  the  far  East,  or  the  population  of  a  little  island  separated 
by  thousands  of  sea-miles  from  any  continent,  may  suffer  from 
a  famine,  properly  so  called,  before  the  arm  of  Christian  Eu- 
rope or  America  can  be  stretched  out  to  the  rescue.  But  no 
civilized  nation,  either  in  the  Old  or  New  World,  whatever  the 
Malthusians  may  say  to  alarm  them,  ever  fear  an  absolute  de- 
ficiency of  food ;  its  fields  may  be  unfruitful  for  a  single  sea- 
son ;  but  in  such  case,  it  looks  with  well-founded  confidence 
to  its  neighbors,  and  even  to  remote  parts  of  the  earth,  for  a 
supply.  In  1847,  the  bounty  of  Providence  to  the  British  Isles 
did  not  fail ;  ship-loads  of  corn  were  turned  away  from  their 
shores  for  want  of  a  market.  The  granaries  of  the  two  islands 
were  filled  to  overflowing,  not  indeed  from  the  products  of 
their  own  harvests,  but  from  the  immense  supplies  poured  into 
them  by  our  ever-teeming  land.  Flour  and  meal  became  a 
drug  in  the  English  market  before  a  sheaf  of  that  year's  wheat 
was  cut,  and  many  dealers  in  grain  were  bankrupted  by  the 
consequent  sudden  reduction  of  prices.  If  the  stock  of  pro- 
visions had  been  equally  distributed  among  the  people,  not  a 
man,  woman,  or  child  among  them  would  have  suffered  from 
famine  for  a  single  hour.  The  fate  of  the  Irish  and  Scotch 
appeared  the  more  terrible,  because  they  starved  in  the  midst  of 
plenty.  They  died,  not  because  the  fields  were  cursed  with 
barrenness,  but  because  they  had  not  wherewithal  to  buy  food. 
The  price  of  breadstuff's  did  not  become  more  than  double  its 
average  in  ordinary  years,  did  not  rise  so  high  by  one  third  as 
in  1800  and  1801 ;  and  in  those  years,  though  there  was  scar- 
city, there  was  no  famine ;  the  sufferings  of  the  poor  were  in- 
creased, but  there  was  no  general  starvation.  The  year  1847 
witnessed  a  frightful  anomaly,  which  will  long  be  remembered 
as  a  disgrace  to  modern  civilization,  —  a  famine  of  which  pov- 
erty was  almost  the  sole  cause. 

A  fallacy  pervades  the  whole  reasoning  of  the  Malthusians 
on  the  relation  of  the  supply  of  food  to  the  growth  of  the  pop- 
ulation. More  grain  is  raised  because  there  are  more  men 
who  need  it,  and  not  more  men  are  raised  because  there  is 
more  grain  to  feed  them  with.  Procreation  is  not  stopped  be- 


THE  MALTHUSIAN  THEORY  OF  POPULATION.       151 

cause  there  is  no  more  grain,  since  misery  and  the  peril  of  star- 
vation only  make  men  reckless,  and  cause  them  to  multiply 
faster.  But  agriculture  is  stopped  when  there  are  no  more 
mouths  calling  for  food ;  a  cessation  of  demand  causes  a  ces- 
sation of  supply  here,  because  the  husbandman  is  looking  only 
for  pecuniary  gain.  But  in  the  case  of  population,  a  want  of 
demand  does  not  occasion  a  want  of  supply ;  since  men  are 
urged  by  their  natural  inclinations,  and  not  by  the  state  of  the 
children-market,  or  by  the  desire  of  profit.  They  do  not  al- 
ways marry  because  they  want  children,  but  because  they 
want  a  wife.  It  is  true,  that  the  call  for  more  food,  which  is 
created  by  an  excess  of  numbers,  will  not  be  an  effectual  call- 
ing, unless  the  people  have  the  means  to  purchase  it  with ;  — 
but  these  they  will  never  lack,  if  the  wealth  of  the  country  is 
distributed  according  to  the  natural  course  of  things,  —  that  is, 
in  exact  proportion  to  the  increase  of  each  family,  all  the  chil- 
dren sharing  alike.  At  any  rate,  if  the  demand  be  rendered 
ineffectual  from  this  cause,  the  real  evil,  the  real  check  upon 
the  population,  is  not  the  insufficient  supply  of  food,  but  the 
want  of  property.  Turn  the  matter  as  we  may,  it  is  not  the 
niggardliness  of  nature  which  is  the  source  of  misery,  but  the 
devices  of  man  and  the  injustice  of  the  laws. 

I  have  endeavored  to  prove,  that  in  the  most  thickly  popu- 
lated country  on  earth,  the  number  of  the  people  is  yet  very 
far  within  the  limit  of  the  subsistence  which  the  land  is  capa- 
ble of  affording,  even  if  we  look  only  to  the  capacities  of  their 
own  soil,  and  not  to  the  immeasurable  supplies  which  their 
wealth  and  commerce  might  pour  in  upon  them  from  other 
shores.  Still  further,  I  do  not  believe  there  is  any  danger  that 
mankind,  even  in  the  lapse  of  future  centuries,  will  ever  multi- 
ply up  to  the  limit  which  the  terraqueous  globe  is  able  to  con- 
tain and  nourish.  To  adopt  the  favorite  metaphor  of  the  Mal- 
thusians,  the  weights  which  are  now  actually  keeping  down 
the  spring  of  population —  that  spring  which  they  think  is  al- 
ways ready  to  fly  up  with  the  full  force  of  a  "  geometrical  pro- 
gression"—  are  war,  vice,  unnecessary  or  curable  disease, 
ignorance,  idleness,  bad  habits,  bad  government,  and  inequal- 
ity of  wealth  fostered  by  bad  laws.  Remove  these,  one  by 
one,  or  in  a  mass,  and  there  will  be  room  for  an  almost  indefi- 
nite expansion  of  the  compressed  force,  and  a  consequent  in- 


152       THE  MALTHUSIAN  THEORY  OF  POPULATION. 

crease  of  human  happiness,  before  the  ultimate  check,  which 
may  be  considered  as  a  weight  hanging  much  higher  up,  can 
come  into  action  through  the  absolute  inability  of  the  earth  to 
contain  and  support  more.  In  truth,  it  is  demonstrable  both 
from  reason  and  experience,  that  population  never  can  rise  to 
the  point  where  it  will  meet  this  last  and  insuperable  obstacle. 
Among  the  lower  weights  to  be  first  removed  are  ignorance, 
vice,  bad  government,  and  a  virtual  division  of  society  into 
castes  through  unnatural  yet  fixed  inequalities  of  wealth  and 
condition.  Take  away  these,  and  you  remove  along  with 
them  the  widely  spread  misery  which  they  foster,  and  which  is 
the  great  cause  why  the  population  multiplies  unduly,  or  un- 
der circumstances  that  are  not  fitted  for  it,  because  such  hope- 
less misery  renders  men  imprudent  and  reckless,  and  leads 
them  to  burden  themselves  with  a  family,  though  they  are  al- 
ready starving,  because  they  cannot  be  worse  off,  and  there  is 
no  hope  of  improving  their  estate.  To  adopt  the  phraseology 
of  Mr.  Malthus,  take  away  the  "  positive  check,"  and  the  "  pre- 
ventive check"  will  come  into  play  of  its  own  accord,  —  will 
come  into  play  naturally,  inevitably,  and  without  compulsion, 
—  not  as  the  consequence  of  a  theory,  but  as  the  easy,  benefi- 
cent, and  necessary  result  of  the  laws  of  nature  and  nature's 
God.  Whatever  tends  to  keep  men  hopelessly  poor  is  a  direct 
encouragement,  the  strongest  of  all  incentives,  to  an  increase 
of  population.  Take  away  the  causes  of  misery,  remove  the 
insurmountable  barriers  which  now  keep  the  various  classes  of 
European  society  apart,  and  educate  the  people,  and  there 
will  be  no  fears  of  an  excess  of  numbers.  Take  away  the 
lower  weights  which  keep  down  the  spring,  and  it  will  never 
rise  high  enough  to  meet  the  upper  one.  The  bounty  and  the 
wisdom  of  Providence  never  fail.  It  is  not  the  excess  of  pop- 
ulation which  causes  the  misery,  but  the  misery  which  causes 
the  excess  of  population. 

Dr.  Whately,  with  great  acuteness,  has  traced  the  erroneous 
conclusions  of  Malthus  to  an  ambiguity  in  the  meaning  of  a 
word.  "By  a  'tendency'  towards  a  certain  result,  is  some- 
times meant  the  existence  of  a  cause  which,  operating  unim- 
peded, would  produce  that  result.  In  this  sense  it  may  be 
said  with  truth,  that  the  earth,  or  any  other  body  moving 
round  a  centre,  has  a  tendency  to  fly  off  at  a  tangent ;  that  is, 


THE  MALTHUSIAN  THEORY  OF  POPULATION.       153 

the  centrifugal  force  operates  in  that  direction,  though  it  is 
controlled  by  the  centripetal :  or,  again,  that  man  has  a  greater 
tendency  to  fall  prostrate  than  to  stand  erect ;  that  is,  the  at- 
traction of  gravitation  and  the  position  of  the  centre  of  gravity 
are  such,  that  the  least  breath  of  air  would  overset  him,  but  for 
the  voluntary  exertion  of  muscular  force :  and  again,  that  pop- 
ulation has  a  tendency  to  increase  beyond  subsistence;  that 
is,  there  are  in  man  propensities  which,  if  unrestrained,  lead  to 
that  result. 

"  But  sometimes,  again,  '  a  tendency  towards  a  certain  re- 
sult '  is  understood  to  mean  '  the  existence  of  such  a  state  of 
things  that  that  result  may  be  expected  to  take  place.'  Now 
it  is  in  these  two  senses  that  the  word  is  used  in  the  two  prem- 
ises of  the  argument  in  question.  But  in  this  latter  sense,  the 
earth  has  a  greater  tendency  to  remain  in  its  orbit  than  to  fly 
off  from  it ;  man  has  a  greater  tendency  to  stand  erect  than  to 
fall  prostrate ;  and,  (as  may  be  proved  by  comparing  a  more 
barbarous  with  a  more  civilized  period  in  the  history  of  any 
country,)  in  the  progress  of  society,  subsistence  has  a  tendency 
to  increase  at  a  greater  rate  than  population.  In  this  country 
[Great  Britain],  for  instance,  much  as  our  population  has  in- 
creased within  the  last  five  centuries,  it  yet  bears  a  far  less 
ratio  to  subsistence  (though  still  a  much  greater  than  could  be 
wished)  than  it  did  five  hundred  years  ago." 

It  is  of  this  ambiguous  meaning  of  the  word  tendency,  that 
the  Malthusians  avail  themselves,  first,  when  they  are  pressed 
by  argument  and  by  the  statement  of  facts  which  are  irrecon- 
cilable with  their  hypothesis,  and,  secondly,  when  they  wish 
to  apply  that  hypothesis  to  the  explanation  of  social  phenom- 
ena at  the  present  day.  In  the  former  case,  they  intrench 
themselves  in  a  naked  statement  of  the  fact,  common  alike  to 
the  animal  and  the  vegetable  kingdoms,  that  each  species  tends 
to  multiply  itself  according  to  the  terms  of  a  geometrical  pro- 
gression, doubling  itself  in  as  short  a  time,  and  with  as  much 
ease,  whether  the  number  of  individuals  in  the  species  be  ten, 
or  ten  millions  ;  —  a  statement  which  no  one  will  think  of  im- 
pugning, though  it  affords  no  more  ground  of  alarm  than  the 
kindred  statement,  that  the  earth  has  a  tendency  to  fly  off  from 
its  orbit  at  a  tangent,  or  that  man  tends  to  fall  prostrate.  No 
sane  person  expects,  in  either  of  these  cases,  that  the  tendency 


154       THE  MALTHUSIAN  THEORY  OF  POPULATION. 

will  be  carried  out,  or  practically  exemplified.  But  in  the  sec- 
ond instance,  when  left  to  themselves,  in  their  attempt  to  educe 
from  their  doctrine  an  explanation  of  the  misery  of  the  work- 
ing classes  in  Great  Britain  and  Ireland,  and  of  the  causes  of 
the  depression  of  wages,  the  Malthusians  use  the  word  ten- 
dency to  denote  "  such  a  state  of  things  that  the  result  (over- 
population and  consequent  misery)  may  be  either  immediately 
expected,  or  declared  to  have  already  taken  place." 

In  this  last  case,  they  may  be  met  by  the  counter  statement 
that  there  is  no  such  tendency,  —  that  is,  no  instance  can  be  ad- 
duced in  which  the  privations  or  the  misery  of  a  people  may 
be  fairly  attributed  to  their  numbers  having  outgrown  their 
supply  of  food.  History  does  not  furnish  one  ;  reason  and  re- 
ligion alike  declare  such  an  event  to  be  impossible.  In  truth, 
the  population  of  the  whole  earth  has  increased  very  slowly, 
some  tribes,  races,  and  nations  wasting  away,  while  others 
flourish  and  multiply  ;  and  the  excess  of  the  increase  in  the  lat- 
ter case  over  the  diminution  in  the  former  one  is  an  almost  in- 
appreciable quantity,  when  compared  with  the  whole  number 
of  mankind.  It  would  be  difficult  to  prove  that  the  world  is 
more  populous  now  than  it  was  a  hundred  years  ago ;  the  Eu- 
ropeans, it  is  true,  are  considerably  more  numerous ;  but  the 
Asiatics  and  Africans  have  probably  diminished  in  number, 
and  the  native  tribes  of  America  —  once  reckoned  at  sixteen 
millions  in  only  the  northern  half  of  the  continent  —  have  al- 
most entirely  dwindled  away.  It  is  certain  that  the  earth  is 
not  yet  peopled  up  to  the  hundredth  part  of  the  number  which 
it  might  supply  with  abundant  food;  and  judging  from  the 
past  only,  or  from  what  experience,  our  only  safe  teacher  on 
such  a  subject,  declares  to  be  probable,  its  population  could 
not  multiply  a  hundred-fold  in  less  than  thousands  of  years. 

The  Malthusian  is  certainly  bound  to  maintain,  that  the 
number  of  mankind  is  now  considerably  greater  than  it  was  in 
the  middle  of  the  ninth  century.  But  he  will  not  venture  to 
assert  that  they  are  now  less  abundantly  supplied  with  food. 
Nay,  he  will  be  obliged  to  admit,  that  the  countries  in  which 
the  population  has  advanced  most  rapidly  are  precisely  those 
which  are  now  most  abundantly  supplied  with  the  necessaries 
of  life.  Practically,  then,  the  experience  of  the  last  thousand 
years  has  proved,  that  subsistence  has  a  "  tendency "  to  outrun 


THE    LAW    OF    POPULATION.  155 

population,  which  is  just  the  reverse  of  the  proposition  of  Mal- 
thus.  Thus  it  must  always  be,  so  long  as  the  earth  yields  much 
less  than  it  is  capable  of  producing ;  for,  in  this  case,  all  that  is 
needed  to  develop  its  latent  capacities  is  an  additional  num- 
ber of  hands  to  be  devoted  to  agriculture,  each  one  of  whom 
must  produce  more  than  is  necessary  for  his  own  sustenance, 
and  must  thus  increase  the  surplus  of  necessaries  which  are 
seeking  for  a  market.  I  have  already  endeavored  to  prove 
that  the  agricultural  population  of  this  country  —  which  em- 
braces two  thirds  of  the  freemen,  and,  if  the  slaves  be  added, 
more  than  three  fourths  of  the  whole  number  —  is  excessive ; 
that  the  surplus  of  grain  and  other  produce  of  the  earth  re- 
maining for  exportation  is  consequently  too  great,  and  its  price 
abroad  is  unreasonably  diminished;  that  a  greater  value  in 
commodities  might  be  obtained  for  a  smaller  quantity  sent 
abroad ;  and  that  the  persons  thus  set  free  from  the  cultivation 
of  the  earth  might  be  more  profitably  employed  in  manufac- 
tures, in  which  the  whole  product  of  their  toil,  which,  as  skilled 
labor,  would  command  a  higher  recompense,  would  be  an  ad- 
dition to  the  present  stock  of  national  wealth. 


CHAPTER    XII. 

THE   PRINCIPLES  WHICH  REGULATE  THE  GROWTH   OF   POPULATION. 

HAVING  briefly  considered  the  doctrine  of  Malthus,  I  propose 
in  this  chapter  to  examine  the  true  theory  of  population,  to  in- 
quire into  the  circumstances  which  govern  its  increase  and  dis- 
tribution. The  true  law  of  the  increase  of  numbers  in  a  civil- 
ized society  is  not  hard  to  find,  though  it  is  difficult  to  express 
all  the  modifications  that  it  undergoes  from  a  change  of  cir- 
cumstances. The  consideration  which  affects  most  strongly 
the  inclination  of  people  to  labor  and  to  save,  and  thus  fur- 
nishes the  chief  stimulus  for  the  accumulation  of  capital,  also 
regulates  in  a  great  degree  then-  tendency  to  increase  in  num- 
ber. It  is  natural  that  it  should  be  so;  other  things  being 


156  THE    LAW    OF    POPULATION. 

equal,  a  man's  condition  as  married  or  single,  and  the  size  of 
his  family,  are  decisive  of  his  worldly  fortune.  If  his  ambition 
is  awakened  by  a  fair  prospect  of  the  attainment  of  riches  and 
consequent  advancement  in  society,  he  will  become  prudent 
not  only  in  his  expenditures,  but  in  contracting  any  relations 
which  may  become  a  burden  to  him,  —  which  may  impede  his 
efforts  to  rise,  and  may  even  tend  to  depress  him  in  the  world. 
In  a  normal  state,  then,  the  inclination  of  people  to  marry  is 
controlled  by  their  opinion  of  the  effect  which  marriage  will 
have  upon  their  position  in  life.  If  they  have  no  fears  that  the 
additional  expense  thus  incurred  will  sink  them  to  a  lower 
rank  in  society,  or  interfere  with  their  hopes  of  rising  in  the 
world,  they  will  follow  the  impulse  of  natural  affection  and 
desire. 

The  eldest  son  in  a  wealthy  family,  where  the  right  of  pri- 
mogeniture prevails,  will  marry  because  his  future  is  secure ; 
whatever  may  happen,  a  fortune  is  secured  to  him  beyond  the 
effects  even  of  his  own  imprudence.  The  miserable  laborers 
on  his  estate,  who  do  not  taste  meat  more  than  once  in  a 
month,  will  marry  because  their  future  is  secured  in  another 
way :  they  have  touched  bottom ;  nothing  can  sink  them  in 
the  world,  and  no  degree  of  prudence  or  self-denial  can  ever 
raise  them  above  a  laborer's  estate.  Their  unhappy  children, 
it  is  true,  may  starve,  or  die  of  diseases  induced  by  insufficient 
or  improper  food ;  and  if  the  theory  of  Malthus  were  true,  this 
consideration  would  often  operate  to  deter  them  from  mar- 
riage, for  they  are  the  only  class  who  may  be  said  to  have  the 
fear  of  starvation  directly  before  their  eyes.  But  excessive 
misery  creates  recklessness  and  despair;  they  who  have  no 
hope  or  fear,  cannot  be  expected  to  deny  themselves  the  only 
gleani  of  comfort  or  alleviation  of  wretchedness  of  which  their 
miserable  state  is  capable. 

The  younger  sons  in  noble  or  wealthy  families,  if  the  patri- 
mony falls  exclusively  to  the  eldest,  generally  remain  single,  or 
marry  late  in  life,  as  an  early  connection  of  this  sort  would  be 
certain  degradation  ;  at  any  rate,  they  could  not  maintain  the 
style  of  living  to  which  they  have  been  brought  up.  As  the 
marriage  of  only  one  person  out  of  a  family  cannot  do  more 
than  keep  up  the  number  in  the  class  to  which  they  belong, 
and  often  may  not  effect  even  that,  these  families  constantly 


THE    LAW    OF    POPULATION.  157 

tend  to  die  out ;  and  if  it  were  not  for  promotions  to  their  rank 
from  the  middle  classes,  the  upper  orders  of  society  would 
gradually  disappear.  Of  the  216  Barons  who  now  sit  in  the 
English  House  of  Lords,  the  peerage  of  all  but  30  has  been  cre- 
ated since  1711 ;  and  127,  or  considerably  more  than  half  of  the 
whole  number,  have  been  admitted  to  the  peerage  since  1800. 
Royal  families  are  still  more  prone  to  die  out  than  the  families 
of  noblemen  ;  from  the  line  of  succession  to  the  English  throne, 
the  families  of  the  Plantagenets,  the  Tudors,  and  the  Stuarts 
have  already  disappeared  ;  and  the  house  of  Brunswick,  saving 
that  branch  of  it  the  title  of  which  is  transmitted  through  a  fe- 
male, exists  by  a  very  slender  tie,  and  will  probably  soon  be 
extinct.  George  III.  had  seven  sons,  four  of  whom  died  with- 
out issue  admitted  to  be  legitimate  by  English  law ;  and  the 
three  who  married  and  had  issue,  left  but  five  children  in  all, 
only  two  of  whom  are  sons.  The  history  of  several  other  royal 
families  in  Europe  is  of  a  similar  character ;  but  the  principle 
is,  perhaps,  most  strikingly  exemplified  among  the  landed  gen- 
try of  England,  whose  continued  and  increasing  opulence  is 
chiefly  to  be  attributed  to  this  cause ;  for  the  diminution  of 
their  numbers,  of  course,  tends  to  the  concentration  of  their 
estates. 

In  the  intermediate  conditions  of  life,  the  frequency  of  mar- 
riages still  depends  on  the  same  rule,  though  its  operation  is 
affected  by  the  general  circumstances  of  the  country,  and  by 
the  particular  position  of  individuals.  In  a  newly  settled  re- 
gion, children  are  a  help  to  the  parents'  advancement,  because 
labor  is  so  valuable  ;  hence  the  rapid  advance  of  population  in 
the  frontier  States  of  our  own  Union,  an  advance  which  immi- 
gration alone  does  not  account  for,  though  a  considerable  part 
of  it  is  certainly  attributable  to  this  latter  cause.  In  a  more 
thickly  populated  country,  children  are  a  hinderance,  from  the 
difficulty  of  establishing  them  in  an  equal  position  of  life  with 
their  parents.  But  even  in  this  case,  those  who  are  in  easy 
circumstances  will  marry,  while  those  who  can  but  just  main- 
tain themselves  in  the  condition  of  life  in  which  they  were  born 
will  often  remain  single.  This  last  case  is  that  of  the  peas- 
antry of  many  countries  of  Continental  Europe,  who  cultivate 
their  own  little  farms,  and  are  perpetually  admonished  by  the 
moderate  size  of  their  properties,  that  any  increase  of  their 
14 


158  THE    LAW    OF    POPULATION. 

number  must  lead,  not  indeed  to  starvation,  but  to  the  forfeit- 
ure of  their  position  as  land-owners. 

Thus,  in  Switzerland,  which  is,  in  the  main,  a  country  of 
small  proprietors,  the  population  increases  so  slowly,  that,  at 
its  present  rate,  it  is  estimated  that  it  would  not  double  itself 
in  less  than  227  years.  In  France,  where  also  the  land  is  cut 
up  into  very  small  estates,  but  where  the  peasantry  are  less 
prudent,  less  disposed  to  make  calculations  respecting  the  fu- 
ture, than  the  Swiss,  the  estimated  period  of  duplication  varies 
from  115  to  138  years.  "  Denmark,"  says  Mr.  Laing,  "  being 
altogether  agricultural,  not  manufacturing,  except  for  the  home 
use  of  her  own  agricultural  consumers,  her  population  increases 
very  slowly,  and  keeps  very  far  behind  the  means  of  subsist- 
ence from  the  products  of  the  soil.  She  is  a  living  evidence 
of  the  falsity  of  the  theory,  that  population  increases  more  rap- 
idly than  subsistence  where  the  land  of  a  country  is  held  by 
small  working  proprietors.  There  are  large  estates  and  small 
all  over  the  country,  estates  of  noblemen  and  gentlemen,  and 
estates  of  peasant  proprietors.  The  greater  part  of  the  land  of 
Denmark  is  in  the  hands  of  the  latter  class.  As  a  class,  they 
are  wealthy." 

The  general  effect  in  the  Old  World,  then,  may  be  thus 
stated,  —  that  the  numbers  of  the  poor  increase  most  rapidly,  of 
the  middle  classes  more  slowly,  and  of  the  upper  or  wealthier 
ones,  either  not  at  all,  or  by  a  fraction  so  small  that  the  effect 
would  hardly  be  perceptible.  This  is  strikingly  illustrated  in 
Sweden,  where  the  census  and  the  registration  of  births, 
deaths,  and  marriages  are  taken  with  reference  to  the  division 
of  the  people  into  three  classes.  The  official  returns  for  1835 
give  the  following  results.  The  yearly  excess  of  births  over 
deaths  among  the  persons  reckoned  as  belonging  to  the  class 
of  the  nobility  was  only  one  for  every  1,508.  For  those  who 
are  described  as  "  persons  of  property  and  station,"  the  yearly 
excess  was  one  for  every  640 ;  while  for  the  peasantry  it  was 
one  for  every  107.  In  other  words,  the  rate  of  increase  for  the 
peasantry  is  nearly  six  times  greater  than  that  of  the  middle 
class,  and  over  fourteen  times  greater  than  that  of  the  nobles. 
Among  the  nobility,  13  per  cent  of  the  married  males  were  but 
twenty-five  years  of  age,  or  under ;  among  the  peasantry,  37 
per  cent  were  married  at  this  early  age.  In  wretched  Ireland, 


THE    LAW    OF    POPULATION.  159 

more  than  one  half  of  the  males  who  are  over  seventeen  years 
of  age  are  married.  Thus  do  the  laws  of  nature  itself  operate 
against  a  permanent  or  hereditary  aristocracy. 

If  we  compare  different  countries  with  each  other,  we  still 
find,  in  every  case,  that  the  lowest  classes  increase  most  rap- 
idly, and  that  the  rate  of  increase  diminishes  as  we  ascend  in 
the  social  scale.  But  we  also  observe,  that  this  law  becomes 
more  prominent  and  conspicuous,  according  as  these  social 
distinctions  are  more  fixed  and  unalterable,  —  that  is,  as  they 
approach  the  nature  of  castes;  and  also,  it  becomes  more 
marked  in  proportion  to  the  degree  of  poverty  and  wretched- 
ness of  the  lowest  class.  Thus,  we  can  discern  the  operation 
of  the  law  even  in  this  country,  where  it  is  matter  of  common 
observation,  that  laborers,  mechanics,  small  tradesmen,  and 
farmers  generally  marry  at  an  early  age,  and  have  large  fami- 
lies ;  while  educated  men,  members  of  the  professions,  and 
sons  of  wealthy  parents  often  defer  "  establishing  themselves  in 
life,"  as  the  phrase  goes,  till  a  comparatively  late  period.  But 
owing  to  the  general  well-being  of  all  classes  here,  and  to  the 
frequency  and  rapidity  of  transitions  from  one  class  to  another, 
these  differences  are  less  obvious  than  in  the  Old  World.  Pop- 
ulation here  generally  advances  in  a  broad  wave,  coming  from 
all  divisions  of  society.  But  that  the  "  preventive  check"  is  not 
inoperative  here  in  the  United  States,  with  all  our  advantages 
of  broad  and  fertile  territories,  appears  from  the  fact  brought 
to  light  by  the  registration  act  in  Massachusetts,  that  the  aver- 
age age  of  males  at  the  time  of  first  marriage  here  is  twenty- 
five  years  and  nearly  nine  months,  while  in  England  it  is  but 
twenty-five  years  and  a  little  over  five  months.  The  average 
age  of  all  the  males  who  contracted  marriages  in  Massachu- 
setts during  the  four  years  1844  -  48,  (either  first  or  subsequent 
marriages,)  was  28.27  years ;  the  average  age  of  all  the  males 
marrying  in  England  was  27.30 ;  so  it  appears  that  English- 
men marry,  on  an  average,  when  about  one  year  younger  than 
the  men  who  marry  in  Massachusetts.  Of  all  the  males  who 
married  in  Massachusetts,  only  1.6  per  cent  were  under  20 
years  of  age ;  in  England,  2.6  per  cent  married  at  this  early 
age.  Obviously,  then,  if  females  did  not  marry  here  at  an 
earlier  age  than  in  England,  and  if  marriages  were  not  more 
general  and  more  fruitful,  our  population  would  not  advance 


160  THE    LAW    OF    POPULATION. 

more  rapidly  than  the  English  population  ;  and  in  fact,  we  find 
from  the  registration  returns,  that  females  in  Massachusetts  are 
married  two  years  earlier  than  females  in  the  mother  country. 

In  France,  where  the  land  is  minutely  divided,  and  the  peas- 
antry are  vastly  better  off  than  in  England,  but  where  each 
person  is  far  more  strongly  chained  to  that  class  of  society  in 
which  he  is  born  than  is  the  case  in  the  United  States,  the  rate 
of  increase  of  the  population,  for  ten  years,  is  only  5  per 
cent,  while  in  England  it  is  15  per  cent,  and  in  Connaught, 
the  sink  of  Irish  misery  and  degradation,  from  1821  to  1831, 
it  was  as  high  as  22  per  cent.  In  the  province  of  Ulster,  the 
rate  is  14,  while  in  the  county  of  Donegal,  it  rises  to  20  per 
cent.  "  And  this  is  precisely  the  county  which  official  reports 
represent  as  forming  an  exception  to  the  general  condition  of 
Presbyterian  Ulster,  and  affording  an  instance  of  poverty  little 
less  extreme  than  that  of  Connaught.  In  the  latter  province, 
we  find  Galway  and  Mayo,  notoriously  the  two  most  destitute 
counties,  exhibiting,  the  one  an  increase  of  27,  and  the  other 
of  25  per  cent."  This  rate,  it  may  be  remarked,  is  rather 
higher  than  the  rate  of  increase,  excluding  the  effects  of  immi- 
gration, in  the  United  States ;  so  that  the  two  extremes,  of 
general  misery  and  of  general  well-being,  produce  very  nearly 
the  same  effect  on  the  movement  of  the  population,  —  a  fact 
utterly  irreconcilable  with  the  theory  of  Malthus. 

The  probable  result  for  our  own  country  may  now  be  very 
clearly  seen.  So  long  as  land  continues  abundant  and  cheap, 
and  the  wages  of  labor  high,  so  long  the  population  will  con- 
tinue to  increase  with  great  rapidity.  Barbarous  tribes  will 
die  out  before  its  advancing  wave,  and  the  desert  will  be  peo- 
pled. But  as  the  country  fills  up,  and  the  wages  of  labor  fall, 
it  will  become  more  difficult  to  rise  from  one  class  of  society 
to  another,  and  the  rate  of  increase  will  diminish.  When  the 
land  becomes  as  thickly  settled  as  Belgium  now  is,  —  a  result 
which  centuries  will  be  required  to  accomplish,  —  the  popula- 
tion will  advance  as  slowly  as  it  now  does  in  Belgium.  I  see 
nothing  in  this  prospect  which  need  alarm  even  those  who  are 
most  apt  to  be  apprehensive  of  the  future.  I  see  no  signs  of 
what  the  Malthusians  most  dread,  —  the  over-population  of 
the  earth. 

Mr.  Senior  has  very  happily  illustrated  the  truth,  that  the 


THE    LAW    OF    POPULATION.  161 

preventive  check  upon  marriages  is  the  fear,  not  of  lacking  the 
necessaries  of  life,  or  of  positive  starvation,  but  of  being  de- 
prived of  those  comforts  and  enjoyments,  of  falling  below  that 
scale  of  expenditure,  which  custom  has  marked  out  as  appro- 
priate for  every  condition  in  life,  or  every  rank  in  the  social 
scale.  Hence  it  is,  that  in  countries  abundantly  supplied  with 
food  and  other  mere  necessaries  of  life,  population  often  ad- 
vances more  slowly  than  in  more  populous  lands,  where  pov- 
erty prevails,  and  large  classes  of  the  people  are  subject  to 
severe  privations.  I  borrow  the  whole  passage  from  Mr.  Sen- 
ior, though  it'  is  of  considerable  length,  as  it  gives  a  clear  state- 
ment of  some  useful  distinctions. 

"  Though  an  apprehended  deficiency  of  some  of  the  articles 
of  wealth  is  substantially  the  only  preventive  check  to  the  in- 
crease of  population,  it  is  obvious  that  fear  of  the  want  of  dif- 
ferent articles  operates,  with  all  men,  very  differently ;  and 
even  that  an  apprehended  want  of  the  same  article  will  affect 
differently  the  minds  of  the  individuals  of  different  classes.  An 
apprehended  want  of  corn  would  produce  on  the  minds  of  all 
Englishmen  a  very  different  effect  from  an  apprehended  want 
of  silk.  An  apprehended  want  of  butcher's  meat  would  affect 
very  differently  the  minds  of  Englishmen  of  different  classes. 
It  appears  to  us,  therefore,  convenient  to  divide  for  this  pur- 
pose the  articles  of  wealth  into  the  three  great  classes  of  Neces- 
saries, Decencies,  and  Luxuries,  and  to  explain  the  different 
effects  produced  by  the  fear  of  the  want  of  the  articles  of 
wealth  falling  under  each  class.  We  must  begin,  however,  by 
stating,  as  precisely  as  we  can,  what  we  mean  by  the  words 
Necessaries,  Decencies,  and  Luxuries ;  terms  which  have  been 
used  ever  since  the  moral  sciences  first  attracted  attention,  but 
with  little  attention  to  precision  as  to  consistent  use. 

"  It  is  scarcely  necessary  to  remind  our  readers  that  these  are 
relative  terms,  and  that  some  person  must  always  be  assigned 
with  reference  to  whom  a  given  commodity  or  service  is  a 
Luxury,  a  Decency,  or  a  Necessary. 

"  By  Necessaries,  then,  we  express  those  things,  the  use  of 
which  is  requisite  to  keep  a  given  individual  in  the  health  and 
strength  essential  to  his  going  through  his  habitual  occupa- 
tions. 

"  By  Decencies,  we  express  those  things  which  a  given  indi- 
14* 


162  THE    LAW    OF    POPULATION. 

vidual  must  use  in  order  to  preserve  his  existing  rank  in  so- 
ciety. 

"  Everything  else  of  which  a  given  individual  makes  use,  or, 
in  other  words,  all  that  portion  of  his  consumption  which  is 
not  essential  to  his  health  and  strength,  or  to  the  preservation 
of  his  existing  rank  in  society,  we  term  Luxury. 

"  It  is  obvious  that,  when  consumed  by  the  inhabitants  of 
different  countries,  or  even  by  different  individuals  in  the  same 
country,  the  same  things  may  be  either  luxuries,  decencies,  or 
necessaries. 

"  Shoes  are  necessaries  to  all  the  inhabitants  of  England. 
Our  habits  are  such,  that  there  is  not  an  individual  whose 
health  would  not  suffer  from  the  want  of  them.  To  the  low- 
est class  of  the  inhabitants  of  Scotland,  they  are  luxuries  ;  cus- 
tom enables  them  to  go  barefoot  without  inconvenience  and 
without  degradation.  When  a  Scotchman  rises  from  the 
lowest  to  the  middling  classes  of  society,  they  become  to  him 
decencies.  He  wears  them  to  preserve,  not  his  feet,  but  his  sta- 
tion in  life.  To  the  higher  class,  who  have  been  accustomed 
to  them  from  infancy,  they  are  as  much  necessaries  as  they  are 
to  all  classes  in  England.  To  the  higher  classes  in  Turkey, 
wine  is  a  luxury  and  tobacco  a  decency.  In  Europe,  it  is  the 
reverse.  The  Turk  drinks  and  the  European  smokes,  not  in 
obedience,  but  in  opposition,  both  to  the  rules  of  health  and  to 
the  forms  of  society.  But  wine  in  Europe  and  the  pipe  in 
Turkey  are  among  the  refreshments  to  which  a  guest  is*  enti- 
tled, and  which  it  would  be  as  indecent  to  refuse  in  the  one 
country  as  to  offer  in  the  other. 

"  It  has  been  said  that  the  coal-heavers  and  lightermen,  and 
some  others  among  the  hard-working  London  laborers,  could 
not  support  their  toils  without  the  stimulus  of  porter.  If  this 
be  true,  porter  is  to  them  a  necessary.  To  all  others,  it  is  a 
luxury.  A  carriage  is  a  decency  to  a  woman  of  fashion,  a  ne- 
cessary to  a  physician,,  and  a  luxury  to  a  tradesman. 

"  The  question,  whether  a  given  commodity  is  to  be  consid- 
ered as  a  decency  or  a  luxury,  is  obviously  one  to  which  no 
answer  can  be  given,  unless  the  place,  the  time,  and  the  rank 
of  the  individual  using  it  be  specified.  The  dress  which  in 
England  was  only  decent  a  hundred  years  ago,  would  be  al- 
most extravagant  now,  while  the  house  and  furniture  which 


THE    LAW    OF    POPULATION.  163 

now  would  afford  merely  decent  acccommodation  to  a  gentle- 
man, would  then  have  been  luxurious  for  a  Peer.  The  causes 
which  entitle  a  commodity  to  be  called  a  necessary  are  more 
permanent  and  more  general.  They  depend  partly  upon  the 
habits  in  which  the  individual  in  question  has  been  brought 
up,  partly  on  the  nature  of  his  occupation,  on  the  lightness  or 
the  severity  of  the  labors  and  hardships  that  he  has  to  undergo, 
and  partly  on  the  climate  in  which  he  lives.  Of  these  causes 
we  have  illustrated  the  two  first  by  the  familiar  examples  of 
shoes  and  porter.  But  the  principal  cause  is  climate.  The 
fuel,  shelter,  and  raiment,  which  are  essential  to  a  Laplander's 
existence,  would  be  worse  than  useless  under  the  tropics. 
And  as  habits  and  occupations  are  very  slowly  changed,  and 
climate  suffers  scarcely  any  alteration,  the  commodities  which 
are  necessary  to  the  different  classes  of  the  inhabitants  of  a 
given  district  may,  and  generally  do,  remain  for  centuries  un- 
changed, while  their  decencies  and  luxuries  are  continually 
varying. 

"  Among  all  classes,  the  check  imposed  by  an  apprehended 
deficiency  of  mere  luxuries  is  but  slight.  The  motives,  per- 
haps we  might  say  the  instincts,  that  prompt  the  human  race 
to  marriage,  are  too  powerful  to  be  much  restrained  by  the 
fear  of  losing  conveniences  unconnected  with  health  or  station 
in  society.  Nor  is  population  much  retarded  by  the  fear  of 
wanting  merely  necessaries.  In  comparatively  uncivilized 
countries,  in  which  alone,  as  we  have  already  seen,  that  want 
is  of  familiar  occurrence,  the  preventive  check  has  little  opera- 
tion. They  see  the  danger,  but  want  prudence  and  self-denial 
to  be  influenced  by  it.  On  the  other  hand,  among  nations  so 
far  advanced  in  civilization  as  to  be  able  to  act  on  such  a  mo- 
tive, the  danger  that  any  given  person  or  his  future  family 
shall  actually  perish  from  indigence,  appears  too  remote  to  af- 
ford any  general  rule  of  conduct. 

"  The  great  preventive  check  is  the  fear  of  losing  decencies, 
or,  what  is  nearly  the  same,  the  hope  to  acquire,  by  the  accu- 
mulation of  a  longer  celibacy,  the  means  of  purchasing  the 
decencies  which  give  a  higher  social  rank.  When  an  English- 
man stands  hesitating  between  love  and  prudence,  a  family 
actually  starving  is  not  among  his  terrors ;  against  actual  want, 
he  knows  that  he  has  the  fence  of  the  poor-laws.  But  how- 


164  THE    THEORY    OF    RENT. 

ever  humble  his  desires,  he  cannot  contemplate  without  anxi- 
ety a  probability  that  the  income  which  supported  his  social 
rank  while  single,  may  be  insufficient  to  maintain  it  when  he 
is  married ;  that  he  may  be  unable  to  give  to  his  children  the 
advantages  of  education  which  he  enjoyed  himself;  in  short, 
that  he  may  lose  his  caste.  Men  of  more  enterprise  are  in- 
duced to  postpone  marriage,  not  merely  by  the  fear  of  sinking, 
but  also  by  the  hope  that,  in  an  unencumbered  state,  they  may 
rise.  As  they  mount,  the  horizon  of  their  ambition  keeps  re- 
ceding, until  sometimes  the  time  has  passed  for  realizing  those 
plans  of  domestic  happiness  which  probably  every  man  has 
formed  in  his  youth."* 

It  is  this  last  cause,  undoubtedly,  which  makes  the  period 
of  marriage  for  males  here  in  Massachusetts  somewhat  later 
than  it  is  for  males  in  Great  Britain. 


CHAPTER    XIII. 

THE    THEORY    OF    RENT. 

THE  entire  science  of  English  Political  Economy  may  be 
said  to  be  built  upon  three  leading  theories;  —  that  of  Adam 
Smith  concerning  free  trade,  that  of  Malthus  in  regard  to  pop- 
ulation, and  that  of  Ricardo  in  regard  to  rent.  They  are  inti- 
mately connected  with  each  other ;  and  a  full  appreciation  of 
the  mixture  of  truth  and  falsehood  which  they  contain,  would 
tend  to  clear  the  science  of  its  local,  English  character,  and  to 
fit  it  for  universal  acceptance  and  utility.  Having  considered 
the  first  incidentally,  and  the  second  at  some  length,  we  may 
pass  to  an  examination  of  Ricardo's  doctrine ;  and  in  explain- 
ing it  I  shall  follow  the  method,  and,  to  some  extent,  the  phra- 
seology, of  its  most  distinguished  advocates. 

The  permanent  or  average  value  of  everything  not  limited 
in  quantity  depends  on  the  cost  of  its  production,  or  on  the 

*  Senior's  Political  Economy,  (ed.  1850,)  pp.  36-38. 


THE    THEORY    OF    RENT.  165 

amount  of  labor  required  to  produce  it.  But  the  cost  of  pro- 
ducing some  commodities  cannot  always  be  reduced  to  the 
same  uniform  standard ;  a  few  persons  may  enjoy  certain  facil- 
ities, some  peculiar  implements  or  patented  machinery,  which 
other  persons  cannot  obtain,  and  by  the  aid  of  which,  they  can 
produce  the  article  at  less  cost,  or  with  a  smaller  amount  of  la- 
bor. They  cannot,  however,  thus  produce  enough  to  satisfy 
the  whole  demand  ;  and  therefore,  other  persons  must  produce 
some  at  the  expense  of  more  labor.  In  such  a  case,  the  price 
of  the  commodity  will  be  determined  by  the  cost  of  that  por- 
tion which  is  produced  with  the  greatest  difficulty ;  for,  unless 
the  price  indemnified  these  producers,  they  would  give  up  the 
business,  and  the  necessary  amount  of  the  article  could  no 
longer  be  had.  But  the  price  having  risen  to  this  point,  the 
persons  producing  the  article  more  easily,  by  the  aid  of  a 
machine  or  implements  of  which  they  have  a  monopoly,  would 
receive  an  extraordinary  profit.  This  whole  extra  profit  may 
be  called  rent,  a  phrase  which  obviously  includes  the  profits  of 
a  patentee  of  a  useful  machine,  as  well  as  those  of  a  land- 
holder. 

The  produce  of  land,  according  to  this  theory,  is  obtained 
under  circumstances  precisely  analogous  to  those  here  sup- 
posed. The  supply  of  grain  or  cattle  may  be  indefinitely 
increased,  by  employing  more  capital  and  labor ;  but  it  can- 
not always  be  increased  in  the  same  proportion  to  the  capital 
and  labor  expended.  In  the  manufacture  of  cottons,  woollens, 
and  silks,  double  the  capital,  and  you  will  usually  double  the 
amount  produced.  But  in  agriculture,  this  is  not  the  case. 
The  most  eligible  land  is  first  taken  up,  —  either  that  which  is 
most  fertile,  or  that  which  is  nearest  to  market,  or  both.  We 
will  call  this  portion  land  of  the  first  class.  For  a  while,  this 
produces  enough  to  satisfy  the  demand.  But  the  population 
increases,  more  grain  is  called  for,  and,  as  there  is  no  more  land 
of  the  first  class  to  be  had,  the  producers  are  obliged  to  take 
land  of  the  second  class,  either  that  which  is  less  fertile,  or  far- 
ther from  market,  or  both ;  the  demand  having  previously  out- 
run the  supply,  the  price  has  risen  enough  to  remunerate  them 
for  employing  capital  and  labor  on  this  less  promising  soil. 
For  a  while,  this  additional  supply  suffices ;  but  then  popula- 
tion again  advances,  the  demand  for  food  is  increased,  the 


166  THE    THEORY    OF    RENT. 

price  rises  again,  and,  as  a  necessary  consequence,  land  of  the 
third  class  is  brought  into  cultivation.  And  so  on,  indefi- 
nitely. At  each  step,  there  is  a  necessary  enhancement  of 
price,  and  therefore  of  profit,  to  those  who  work  the  land  of 
higher  quality,  or  of  more  easy  access.  The  price  of  the  grain 
and  cattle  which  are  brought  to  market  must  always  be  high 
enough  to  pay  those  who  work  the  poorest  land  in  use  ;  other- 
wise, they  would  quit  the  employment,  and  the  land  would 
fall  out  of  cultivation.  But  this  price,  of  course,  will  give  a 
larger  profit  to  those  who  hold  the  land  of  the  next  higher 
class,  and  a  still  larger  one  to  the  owners  of  land  of  the  first 
class.  And  as  still  inferior  lands  come  into  use,  these  profits 
must  become  yet  larger.  The  result  is,  that  the  amount  of 
rent  for  land  must  always  depend  on  the  degree  of  superiority 
of  that  land  over  the  least  fertile,  or  least  eligible,  ground  which 
is  cultivated  at  all. 

By  the  original  constitution  of  nature,  land  is  of  various  de- 
grees of  productiveness.  One  acre,  with  a  certain  quantity  of 
labor  bestowed  upon  it,  will  yield  forty  bushels  of  wheat ;  an- 
other acre,  with  the  same  amount  of  labor,  will  yield  but  thirty 
bushels ;  a  third  acre,  still  requiring  the  same  labor,  gives  but 
twenty  bushels.  Now,  suppose  that  these  three  acres  of  land 
constituted  the  whole  stock  of  a  family  of  persons  living  upon 
an  island  of  this  extent,  and  wholly  cut  off  from  intercourse 
with  the  rest  of  the  world,  by  the  intervention  of  a  wide  waste 
of  ocean,  and  by  their  lack  of  ships  or  boats.  If  this  family 
consisted  of  but  five  persons,  we  may  suppose  that  one  acre 
would  furnish  them  grain  enough,  and,  of  course,  they  would 
choose  the  most  productive  land.  There  being  land  of  this 
quality  enough  for  all,  no  portion  of  it  would  yield  any  rent. 
But  if  three  persons  should  be  added  to  their  number,  there 
would  be  a  necessity  of  cultivating  the  next  best  acre  of  land  ; 
and  to  the  persons  undertaking  to  cultivate  it,  it  would 
amount  to  the  same  thing  whether  they  took  without  rent  the 
land  yielding  thirty  bushels  to  the  acre,  or  paid  a  rent,  equal 
in  value  to  ten  bushels  of  grain,  for  the  land  producing  forty 
bushels  to  the  acre.  The  increase  of  population,  then,  render- 
ing it  necessary  to  have  recourse  to  land  of  inferior  fertility, 
would  cause  land  of  the  first  class  to  pay  rent ;  and  this  rent 
would  be  exactly  proportioned  to  its  degree  of  superiority  over 


THE    THEORY    OF    RENT.  167 

the  worst  land  in  cultivation,  which  yields  no  rent.  A  farther 
accession  of  three  individuals  would  oblige  the  community  to 
till  the  third  acre,  which  yields  but  twenty  bushels ;  and  one 
might  have  his  choice  between  having  this  land  without  rent, 
or  paying  ten  bushels  a  year  for  land  of  the  next  best  quality, 
or  twenty  bushels  a  year  for  the  most  fertile  spot.  The  result 
in  either  case  would  be  the  same  to  him.  Always  the  worst 
land  in  cultivation  pays  no  rent ;  and  all  other  land  pays  rent 
in  proportion  to  the  degree  of  its  superiority  over  this  poorest 
land. 

Natural  fertility  is  but  one  of  the  circumstances  that  give 
value  to  land,  or  cause  it  to  pay  rent ;  nearness  to  market,  or 
any  other  natural  quality,  operates  in  precisely  the  same  way. 
If  all  the  land  produces  the  same  quantity  to  the  acre,  and  if 
the  produce  of  one  acre  can  be  sold  on  the  spot,  while  it  costs 
the  value  of  ten  bushels  of  grain  to  carry  the  produce  of  the 
second  acre  to  market,  and  of  twenty  bushels  to  transport  that 
of  the  third  acre,  then  the  first  acre  will  bear  a  rent  of  twenty 
bushels,  the  second  a  rent  of  ten  bushels,  and  the  third  no  rent 
at  all,  because  it  produces  but  twenty  bushels,  and  the  value 
of  this  product  is  all  consumed  in  transporting  it  to  market. 
The  increased  demand  of  towns,  occasioned  by  the  increase  of 
their  population,  not  only  tempts  the  cultivators  in  their  vicin- 
ity to  improve  their  lands  more  highly,  but  frequently  causes 
large  portions  of  their  supplies  to  be  brought  from  a  great  dis- 
tance. Hence  it  sometimes  happens,  that  the  advantage  of 
vicinity  more  than  counterbalances  the  disadvantage  of  com- 
parative barrenness,  so  that  lands  of  inferior  fertility,  in  the 
immediate  environs  of  a  large  town,  yield  a  considerable  rent, 
while  much  richer  land,  at  a  distance  from  good  markets, 
yields  little  or  perhaps  no  rent.  As  vicinity  to  a  town  is  a 
cause  of  rent,  so  vicinity  to  a  road,  navigable  river,  or  canal, 
by  diminishing  the  expense  of  carriage  to  some  great  market, 
may  have  a  similar  effect. 

Observe,  also,  that  the  theory  still  holds  good,  whether  the 
increase  of  population  constrains  us  to  take  poorer  land,  hith- 
erto neglected,  into  cultivation,  or  to  expend  more  capital  and 
labor  upon  the  land  already  in  tillage,  with  a  view  of  increas- 
ing its  product  For  the  additional  capital  thus  invested  will 
not  yield  a  return  proportionally  great  with  that  capital  which 


168  THE    THEORY    OF    RENT. 

was  first  employed.  If,  for  instance,  a  thousand  dollars  of 
capital  spent  upon  a  farm  will  cause  it  to  yield  at  the  rate  of 
thirty  bushels  to  the  acre,  the  expenditure  of  a  second  thou- 
sand dollars  upon  it  may  raise  the  crop,  perhaps,  to  forty  bush- 
els per  acre  ;  but  it  certainly  will  not  double  the  crop,  or  make 
the  yield  to  be  sixty  bushels,  as  it  ought  to  do,  if  the  second 
application  of  capital  were  equally  remunerative  with  the  first. 
Then  the  second  application  of  capital  will  not  be  made  till 
the  increase  of  population  has  caused  the  price  of  grain  to  rise 
so  high,  that  this  second  thousand  dollars  will  produce  as  large 
profits  as  capital  applied  in  other  ways.  And  when  this  sec- 
ond thousand  dollars  will  yield  ordinary  profits,  it  is  obvious 
that  the  first  thousand  dollars,  applied  under  circumstances 
much  more  advantageous,  will  yield  much  more  than  the  ordi- 
nary profits.  The  difference  between  these  two  rates  of  profit 
is  the  rent  of  the  land.  Thus,  always,  just  as  there  are  more 
mouths  calling  for  more  food,  either  poorer  land  must  be  taken 
into  cultivation,  or  more  capital  must  be  applied  with  perpetu- 
ally diminishing  returns,  or  at  rates  of  profit  growing  succes- 
sively less  and  less. 

It  is  true,  as  the  theory  admits,  that  the  necessity  of  having 
recourse  to  inferior  lands,  or  of  applying  more  capital  with 
constantly  diminishing  returns,  is  postponed  by  the  improve- 
ments that  are  made,  from  time  to  time,  in  the  tools  and  pro- 
cesses of  agriculture,  which  enable  us  to  obtain  more  food  from 
the  same  quantity  of  land  without  a  proportionate  increase  of 
capital  or  industry.  But  the  evil  day  is  thus  only  postponed, 
not  entirely  removed.  It  is  impossible  that  agricultural  im- 
provements should  keep  pace  for  any  long  time  with  the  in- 
crease of  the  population ;  for  they  are  limited  in  their  nature 
and  extent,  while  the  prolific  power  of  the  human  race  is  un- 
bounded. These  improvements  also  stimulate  the  increase 
of  numbers,  and  thus,  in  one  way,  tend  to  increase  the  evil, 
which  they  do  but  partially  check  in  another.  "  Improvements 
in  the  construction  of  farming  implements,"  says  McCulloch, 
"  the  discovery  of  more  efficient  manures,  the  introduction  of 
more  prolific  crops,  and  of  improved  systems  of  management, 
increase,  in  a  high  degree,  the  productiveness  of  the  soil,  and 
proportionally  reduce  the  price  of  raw  produce ;  but  a  fall  of 
price,  though  permanent  in  manufactures,  is  only  temporary  in 


THE    THEORY    OF    RENT.  169 

agriculture.  When  the  price  of  corn  is  reduced,  all  classes  ob- 
tain greater  quantities  than  before  in  exchange  for  their  prod- 
ucts or  their  labor ;  hence  the  rate  of  profit,  and  consequently 
the  accumulation  of  capital,  are  both  increased ;  and  this  in- 
crease, by  causing  a  greater  demand  for  labor  and  higher 
wages,  leads,  in  the  end,  to  an  increase  of  population,  and, 
consequently,  to  a  further  demand  for  raw  produce,  and  an  ex- 
tended cultivation.  Agricultural  improvements  obviate,  some- 
times for  a  lengthened  period,  the  necessity  of  having  recourse 
to  inferior  soils ;  still,  however,  their  influence  in  this  respect 
cannot  be  permanent.  The  stimulus  which  they  at  the  same 
time  give  to  population,  and  the  natural  tendency  of  mankind 
to  increase  up  to  the  means  of  subsistence,  are  sure,  in  the 
long  run,  to  raise  prices,  and,  by  forcing  recourse  to  poor  lands, 
rents  also." 

Mr.  Malthus  has  ingeniously  illustrated  this  theory  of  rent. 
"  The  earth,"  he  says,  "  has  been  sometimes  compared  to  a 
vast  machine,  presented  by  nature  to  man  for  the  production 
of  food  and  raw  materials ;  but  to  make  the  resemblance  more 
just,  as  far  as  they  admit  of  comparison,  we  should  consider 
the  soil  as  a  present  to  man  of  a  great  number  of  machines,  all 
susceptible  of  continued  improvement  by  the  application  of 
capital  to  them,  but  yet  of  very  different  original  qualities  and 
powers.  This  great  inequality  in  the  powers  of  the  machinery 
employed  in  procuring  raw  produce,  forms  one  of  the  most  re- 
markable features  which  distinguish  the  machinery  of  the  land 
from  the  machinery  employed  in  manufactures. 

"  When  a  machine  in  manufactures  is  invented  which  will 
produce  more  finished  work  with  less  labor  and  capital  than 
before,  if  there  be  no  patent,  or  as  soon  as  the  patent  is  over, 
a  sufficient  number  of  such  machines  may  be  made  to  supply 
the  whole  demand,  and  to  supersede  entirely  the  use  of  all  the 
old  machinery.  The  natural  consequence  is,  that  the  price  is 
reduced  to  the  price  of  production  from  the  best  machinery ; 
and  if  the  price  were  to  be  depressed  lower,  the  whole  of  the 
commodity  would  be  withdrawn  from  the  market. 

"  The  machines  which  produce  corn  and  raw  materials,  on 
the  contrary,  are  the  gifts  of  nature,  not  the  works  of  man ; 
and  we  find  by  experience  that  these  machines  have  very  dif- 
ferent qualities  and  powers.  The  most  fertile  lands  of  a  coun- 
15 


170  THE    THEORY    OF    RENT. 

try,  those  which,  like  the  best  machinery  in  manufactures, 
yield  the  greatest  products  with  the  least  labor  and  capital, 
are  never  found  sufficient  to  supply  the  effective  demand  of  an 
increasing  population.  The  price  of  raw  produce,  therefore, 
naturally  rises,  till  it  becomes  sufficiently  high  to  pay  the  cost 
of  raising  it  with  inferior  machines,  and  by  a  more  expensive 
process ;  and  as  there  cannot  be  two  prices  for  corn  of  the  same 
quality,  all  the  other  machines,  the  working  of  which  requires 
less  capital  compared  with  the  produce,  must  yield  rents  in 
proportion  to  their  goodness.  Every  extensive  country  may 
thus  be  considered  as  possessing  a  gradation  of  machines  for 
the  production  of  corn  and  raw  materials,  including  in  this 
gradation  not  only  all  the  various  qualities  of  poor  land,  of 
which  every  large  territory  has  generally  an  abundance,  but 
the  inferior  machinery  which  may  be  said  to  be  employed 
when  good  land  is  further  and  further  forced  for  additional  prod- 
uce. As  the  price  of  raw  produce  continues  to  rise,  these  in- 
ferior machines  are  successively  called  into  action  ;  and  as  the 
price  of  raw  produce  continues  to  fall,  they  are  successively 
thrown  out  of  action.  The  illustration  here  used  serves  to 
show  at  once  the  necessity  of  the  actual  price  of  corn  to  the 
actual  produce,  and  the  different  effect  which  would  attend  a 
great  reduction  in  the  price  of  any  particular  manufacture,  and 
a  great  reduction  in  the  price  of  raw  produce." 

This  is  a  brief,  but,  I  hope,  sufficiently  clear  and  fair  expo- 
sition of  Bicardo's  celebrated  theory  of  rent.  I  call  it  Ricar- 
do's  theory,  though  aware  that  it  was  first  promulgated  by  Dr. 
Anderson,  of  Scotland,  as  early  as  1777.  It  then  attracted 
hardly  any  notice,  and  was  subsequently  forgotten.  It  was 
afterwards  rediscovered,  almost  simultaneously,  by  Sir  Edward 
West  and  Mr.  Malthus,  while  Mr.  Ricardo  has  most  success- 
fully developed  it,  applying  it  to  the  theory  of  profits,  and  to 
the  solution  of  many  other  problems  in  economical  science. 
Malthus  was  certainly  put  upon  the  track  of  it  by  his  own  the- 
ory of  population,  of  which  it  is  an  obvious  complement.  As 
it  might  be  objected  to  the  Malthusian  doctrine,  that  the  dan- 
ger which  it  contemplated  was  prospective  and  distant,  the 
world  certainly  not  being  over-populated  as  yet  in  all  its  parts, 
this  theory  of  rent  comes  in  to  fill  up  the  deficiency  in  our  her- 
itage of  woe,  and  to  prove  that  the  increase  of  population,  to 


THE    THEORY    OP    RENT.  171 

which  the  human  race  is  always  tending,  is  always  an  evil, 

that,  for  every  new  life  which  is  created,  some  new  restraint, 
privation,  or  loss  is  imposed  upon  those  already  in  being. 
"  Granted,"  these  prophets  of  evil  may  exclaim,  "  that  there  is 
not  as  yet  any  absolute  deficiency  of  food;  yet  every  birth 
tends  to  raise  the  price  of  the  stock  of  sustenance  which  we 
have,  because  it  obliges  us  to  cultivate  still  poorer  land,  and  to 
apply  labor  and  capital  with  constantly  diminishing  returns,  — 
or  to  work  at  smaller  wages,  and  apply  capital  at  smaller 
profits."  *  Mr.  Mill  states  the  legitimate  inference  from  these 
two  theories  of  population  and  rent  clearly  and  strongly,  when 


*  Dr.  Chalmers  actually  argues  in  this  manner,  and  with  characteristic 
ness.  "  It  is  thus,"  he  says,  "  that,  for  the  continued  pressure  of  the  world's  popu- 
lation on  its  food,  it  is  far  from  necessary  that  the  food  should  have  reached  that 
stationary  maximum  beyond  which  it  cannot  be  carried.  It  is  enough  for  this  pur- 
pose, that  the  limit  of  the  world's  abundance,  though  it  does  recede,  should  recede 
more  slowly  than  would  the  limit  of  the  world's  population.  A  pressure,  and  that  a 
very  severe  one,  may  be  felt  for  many  ages  together,  from  a  difference  in  the  mere 
tendencies  of  their  increase.  The  man  who  so  runs  as  to  break  his  head  against  a 
wall  might  receive  a  severe  contusion,  even  to  the  breaking  of  his  head,  if,  instead 
of  a  wall,  it  had  been  a  slowly  retiring  barrier.  And  therefore  we  do  not  antedate 
matters  by  taking  up  now  the  consideration  of  Malthus's  preventive  and  positive 
checks  to  population.  There  is  scarcely  a  period,  even  in  the  bygone  history  of  the 
world,  when  the  former  checks  have  not  been  called  for,  and  the  latter  have  not  been 
in  actual  operation.  To  postpone  either  the  argument  or  its  application  till  the 
agriculture  of  the  world  shall  be  perfected,  is  a  most  unpractical,  as  well  as  a  most 
intelligent  view  of  the  question ;  —  for  long  ere  this  distant  consummation  can  be 
realized,  and  even  now,  may  the  obstacle  of  a  slowly  retiring  limit  begin  to  be  felt 
The  tendency  of  a  progressive  population  to  outstrip  the  progressive  culture  of  the 
earth,  may  put  mankind  into  a  condition  of  straitness  and  difficulty,  —  and  that  for 
many  generations  before  the  earth  shall  be  wholly  cultivated Let  the  pop- 
ulation increase  to  the  extent  of  its  own  inherent  power  of  increase,  and  it  would 
force  the  existing  limit  of  cultivation ;  or,  in  other  words,  flow  over  upon  a  soil  in- 
ferior to  that  which  had  last  been  entered  upon,  or  inferior  to  that  which,  at  the  then 
rate  of  enjoyment,  could  do  no  more  than  feed  the  laboring  cultivators  and  their  sec- 
ondaries [the  manufacturers  who  supply  them  with  tools  and  wrought  goods].  The 
consequence  of  such  a  descent  is  inevitable.  The  rate  of  enjoyment  must  fall.  The 
agricultural  workmen  must  either  submit  to  be  worse  fed  than  before,  or,  parting 
with  so  many  of  their  secondaries,  they  must  submit  to  be  worse  clothed,  or  lodged, 
or  furnished  than  before.  The  likelihood  is,  that  they  would  so  proportion  their 
sacrifices  as  to  suffer  in  both  these  ways ;  —  and  so  there  behoved  to  be  a  general 
degradation  of  comfort  in  the  working  classes  of  society.  There  is,  to  be  sure,  an- 
other way  in  which  they  might  possibly  extract  from  the  more  ungrateful  soil,  on 
which  they  had  just  entered,  the  same  plenty  as  before.  They  may  submit  to  harder 
labor,  by  putting  forth  a  more  strenuous  husbandry  on  the  inferior  land  ;  but  this 
too  is  degradation.  Whether  by  an  increase  of  drudgery,  or  an  increase  of  destitu- 
tion, there  may,  in  either  way,  be  a  sore  aggravation  to  the  misery  of  laborers."  — 
Chalmers's  Politico? Economy,  Vol.  I.  pp.  35-37. 


172  THE    THEORY    OF    RENT. 

he  says,  that  "a  greater  number  of  people  cannot,  in  any 
given  state  of  civilization,  be  collectively  so  well  provided  for 
as  a  smaller." 

I  do  not  accept  these  gloomy  views  of  the  course  of  nature 
and  Providence.  I  do  not  believe  that  any  increase  in  the 
number  of  the  civilized,  Christian  inhabitants  of  the  earth  is 
an  evil,  or  that  it  entails  any  evil  upon  coming  generations. 
Recognizing  the  facts,  which  must  be  obvious  to  all,  that  the 
civilized  nations  of  the  earth  are  now  steadily  advancing  in 
numbers,  though  with  various  degrees  of  rapidity,  while  the 
barbarous  tribes  are  either  stationary,  or  are  dwindling  away, 
some  of  them  with  fearful  speed,  I  see  in  them  the  beneficent 
working  of  a  great  law  of  Providence,  which  is  giving  the 
earth  to  be  the  exclusive  habitation  of  those  who  know  how  to 
develop  its  resources,  and  apply  them  to  the  noblest  uses.  The 
arts  of  peace,  and  the  discovery  of  new  means  and  appliances 
of  civilization,  are  at  least  keeping  pace  with,  if  they  do  not 
outstrip,  the  actual  increase  of  mankind  in  numbers.  A  nicely 
graduated  principle  of  restraint,  applied  just  where  it  is  most 
needed,  checks  the  undue  multiplication  of  the  race  in  certain 
localities,  where  the  pressure  of  population  on  the  means  of 
subsistence  just  begins  to  be  felt ;  and  this  principle,  mild  and 
beneficent  in  its  mode  of  operation,  like  all  the  general  laws  of 
Providence,  must  become  universal  in  its  effect,  at  that  far  dis- 
tant day  in  the  lapse  of  ages,  when,  if  ever,  the  earth  shall  be 
so  fully  stocked  with  happy  human  beings,  that  there  shall  not 
be  room  and  sustenance  for  more.  The  social  evils  which  un- 
questionably now  exist,  and  which  are  traced  by  such  econo- 
mists as  Malthus,  Ricardo,  and  McCulloch  to  an  excess  of 
population,  appear  clearly  imputable  to  defective,  unnatural, 
and  unjust  institutions  of  man's  device,  and  admit  of  remedy 
without  shaking  the  pillars  of  social  order,  or  impiously  calling 
on  God  to  send  war,  inundations,  or  pestilence,  wherewith  to 
scourge  mankind  into  a  sense  of  their  duty  to  restrain  their 
natural  inclinations,  and  destroy  the  sources  of  domestic  hap- 
piness. Having  established  these  points  against  the  doctrines 
and  the  calculations  of  Malthus,  I  proceed  to  show  that  there 
is  nothing  in  this  theory  of  rent  which  ought  to  shake  our 
confidence  in  them. 

And  first,  I  would  call  attention  to  the  fact,  that  both  these 


THE    THEORY    OF    RENT.  173 

theories  are  of  English  origin,  and  were  first  suggested,  as  is 
obvious,  by  observation  of  those  evils  in  the  social  condition 
of  England,  which  only  within  the  present  century  have  be- 
come of  crying  magnitude.  These  evils  have  manifested  them- 
selves in  the  only  country  in  Europe  in  which  all  the  land,  the 
great  food-producing  machine,  has  come  to  be  owned  by  so 
small  a  class,  that  the  great  body  of  the  community  seem  to 
have  no  part  or  lot  in  it ;  while,  at  the  same  time,  those  an- 
cient patriarchal  and  religious  institutions,  which  certainly  did 
much  to  mitigate  the  effects  of  an  undue  aggregation  of  landed 
property  in  the  hands  of  a  few,  have  entirely  died  out  or  been 
destroyed.  It  is  the  boast  of  the  English,  that  the  relations  of 
vassal  and  lord,  clansman  and  chieftain,  serf  and  master,  no 
longer  exist  among  them.  The  English  barons  no  longer  sup- 
port each  an  army  of  retainers  to  be  their  followers  in  war,  and 
to  keep  up  their  feudal  state.  English  prelates  and  monks  no 
longer  dispense  open-handed  hospitality  and  charity  at  the 
gates  of  richly  endowed  monasteries.  These  institutions  of 
the  Middle  Ages  have  been  destroyed  in  England,  root  and 
branch  ;  but  their  fall  has  not,  as  in  many  parts  of  the  Conti- 
nent, caused  the  landed  property  once  aggregated  in  their  sup- 
port to  be  parcelled  out  again,  with  great  minuteness  and  some 
approach  to  equality,  among  those  who  were  formerly  main- 
tained by  it  in  rude  plenty,  though  not  in  peace  or  perfect  free- 
dom. Feudal  relations  have  been  done  away,  but  the  magni- 
tude of  feudal  estates  has  not  been  diminished.  The  Highland 
chieftain  has  banished  his  clansmen  from  their  hereditary  pos- 
sessions and  hereditary  dependence  on  him,  has  compelled 
them  to  emigrate  or  starve,  has  turned  his  vast  Highland  es- 
tate into  sheepwalks  and  deer-parks,  and  has  himself  become  a 
wealthy  English  nobleman.  A  cool  pecuniary  calculation  of 
profit  and  loss  has  induced  him  to  take  this  step.  The  same 
motive  has  caused  the  great  English  landholders  to  depopulate 
their  estates,  driving  the  rural  tenantry  into  the  towns  and 
manufacturing  districts,  where  they  must  become  operatives  or 
paupers.  The  consequence  of  this  aggregation  of  landed  es- 
tates, and  this  mode  of  deriving  the  largest  possible  rent  from 
them,  has  been  a  fearful  increase  of  pauperism,  and  a  general 
apprehension  lest  the  tax  for  the  support  of  the  poor  should  be- 
come so  large  as  eventually  to  beggar  the  rich  also.  No  won- 
15* 


174  THE    THEORY    OF    RENT. 

der  that  any  increase  of  the  population  should  be  deemed  an 
evil,  when  it  appears  from  the  returns,  that  one  tenth  part  of 
that  population  are  legalized  paupers ;  and  as  not  the  same  in- 
dividuals, in  all  cases,  receive  public  relief  each  successive  year, 
it  is  probable  that  as  many  as  one  sixth  of  the  whole  number 
of  the  people  are,  or  have  been,  dependent  on  public  charity. 

Systems  and  theories  of  political  economy  suggested  by  cir- 
cumstances so  anomalous  and  peculiar  as  these,  or  contrived 
with  a  view  to  explain  and  justify  them,  are  not  likely  to  be 
applicable  to  other  countries,  or  to  contain  many  general  truths. 
England  is  the  only  country  in  the  world  in  which  the  labor- 
ing class  is  entirely  dependent  on  the  wages  of  hired  labor ;  on 
the  Continent,  in  most  instances,  they  have  a  small  property 
on  which  they  can  subsist,  though  poorly,  in  seasons  when 
they  cannot  obtain  employment  elsewhere  for  time  not  needed 
at  home,  so  as  to  add  to  their  scanty  incomes  a  small  amount 
received  as  wages.  If  they  have  not  a  little  land  which  is 
entirely  their  own,  they  have  a  sort  of  prescriptive  right  to  cul- 
tivate the  land  of  others,  on  certain  fixed  terms,  either  as  me- 
layers,  giving  all  the  labor  for  a  portion  of  the  produce,  or  as 
feudal  subjects  bound  to  the  soil,  and  having  a  right  of  main- 
tenance from  it.  In  neither  case  are  they  driven  into  the 
labor-market,  as  their  only  refuge  from  starvation,  there  con- 
stantly to  depress  wages  by  their  frantic  competition  for  em- 
ployment, or  to  give  up  the  struggle  in  despair  by  throwing 
themselves  upon  compulsory  public  charity. 

Ricardo's  theory  of  rent  was  discovered  or  invented  with  ref- 
erence to  this  anomalous  state  of  things.  It  is  an  attempt  to 
establish  as  a  law  of  nature  the  general  fact,  that  an  increase 
of  the  numbers  of  a  people,  under  any  circumstances,  is  an  evil, 
because  it  creates  an  additional  demand  for  food,  which  can 
only  be  met  by  having  recourse  to  poorer  or  less  advanta- 
geously situated  soils,  and  by  applying  more  labor  and  capital 
with  constantly  diminishing  returns.  It  is  abundantly  confuted 
by  facts,  and  can  easily  be  shown  to  be  unsound  in  principle. 
The  assertion  of  Mr.  Mill,  "  that  a  greater  number  of  people 
cannot  collectively  be  so  well  provided  for  as  a  smaller,"  be- 
comes absurd  when  applied  to  an  infant  colony,  established  in 
a  vast  territory,  on  a  virgin  soil.  Who  can  seriously  maintain, 
that  an  increase  of  population  is  an  evil  in  British  Australia, 


THE    THEORY    OF    RENT.  175 

or  in  the  great  valley  of  the  Mississippi  ?  It  might  as  well  be 
said  that  the  people  of  Ohio,  Indiana,  and  Wisconsin  are 
straitened  for  want  of  room,  as  that  their  proportionate  supply 
of  food  was  lessened  by  the  increase  of  their  numbers.  Among 
them,  surely,  it  is  apparent  that  an  increase  of  population  is  an 
increase  of  productive  power,  and  hence  a  proportionate  in- 
crease of  the  surplus  of  grain  and  other  articles  of  sustenance, 
which,  after  satisfying  all  their  own  wants  in  the  amplest  man- 
ner, they  are  able  to  send  off  to  satisfy  the  wants  of  other 
nations.  The  average  price  of  flour  in  Philadelphia  market 
between  1800  and  1810,  exceeded  eight  dollars  a  barrel ;  from 
1810  to  1820,  the  average  was  about  nine  doUars.  The  popu- 
lation of  this  country  in  1800  was  but  little  over  five  millions ; 
in  1820,  it  was  somewhat  less  than  ten  millions.  It  is  now 
more  than  twenty-three  millions.  And  is  the  nation,  in  conse- 
quence of  this  vast  increase  of  numbers,  less  bountifully  sup- 
plied with  food  ?  On  the  contrary,  the  price  of  flour  and  other 
bread-stuffs  has  greatly  diminished,  and  we  are  supplying  the 
world  with  them.  The  average  price  of  flour  for  several  years 
preceding  1853,  was  less  than  six  doUars. 

Our  average  annual  export  of  articles  of  food  now  probably 
exceeds  thirty-five  millions  of  doUars  in  value ;  and  in  case  of 
any  failure  of  the  crops  in  Europe,  it  could  probably  be  raised 
to  seventy-five  millions,  without  materially  lessening  the  enjoy- 
ments of  the  people  of  this  country,  or  raising  the  price  of  grain 
to  a  point  beyond  the  reach  of  the  poorest  class  of  the  popula- 
tion. In  1847,  the  year  of  famine  in  Ireland,  our  export  of 
bread-stuffs  actually  rose  to  nearly  sixty-nine  millions,  and  in 
1853,  owing  to  a  partial  failure  of  the  crops  and  to  the  Russian 
war  in  Europe,  it  was  about  sixty-six  millions.  Do  these  facts 
afford  any  evidence  that  the  twenty-three  millions,  who  now 
constitute  the  American  nation,  are  not  so  well  provided  for  as 
the  five  millions  who  occupied  their  place  only  fifty  years  ago  ? 
Are  they  not  rather  a  demonstration  of  the  principle,  that  the 
increase  of  numbers  is  an  increase  of  productive  power,  and  a 
consequent  proportionate  increase  of  the  means  of  subsistence, 
—  of  the  necessaries,  comforts,  and  luxuries  of  life  ? 

But  it  may  be  said  that  America  is  an  exceptional  case,  and 
that  we  have  no  right  to  argue  from  the  fortunate  circumstan- 
ces in  which  we  are  placed,  to  general  conclusions  which  would 


176  THE    THEORY    OF    RENT. 

be  wholly  inapplicable  in  other  portions  of  the  world.  We 
answer,  that  the  facilities  afforded  by  commerce  now  really 
connect  all  the  civilized  nations  of  the  earth  into  one  great 
community,  the  supply  of  all  articles  being  made  everywhere 
proportionate  to  the  demand  and  to  the  ability  to  pay  for 
them.  Grain  and  other  articles  of  provision  are  matters  both 
of  foreign  and  domestic  traffic ;  every  country  can  obtain  an 
abundance  of  them,  though  her  own  soil  may  be  entirely  bar- 
ren. Great  Britain  has  no  difficulty  in  obtaining  a  supply  of 
cotton,  though  the  cotton-plant  will  not  grow  in  the  British 
Isles.  Grain  and  other  provisions  can  be  purchased  even  with 
greater  facility  than  cotton  and  tobacco,  or  coffee  and  tea ;  for 
these  latter  articles  can  be  raised  only  in  a  few  favored  coun- 
tries, while  the  market  of  the  whole  world  is  open  for  the  sale 
of  food.  In  fact,  the  markets  of  New  York  and  Liverpool 
now  regulate  each  other;  since  the  abrogation  of  the  corn- 
laws,  the  price  of  grain  cannot  rise  five  per  cent  in  the  latter 
place  without  a  corresponding  enhancement  of  price  in  New 
York  within  one  fortnight,  the  time  which  it  takes  for  a  steam- 
er to  cross  the  Atlantic  and  convey  the  intelligence ;  and  before 
another  week  has  elapsed,  ship-loads  of  corn  are  stemming  their 
way  eastward,  to  supply  the  trifling  deficiency  indicated  even 
by  this  slight  change  in  the  market.  It  is  no  more  a  hardship 
or  a  disadvantage  for  England,  than  for  our  own  State  of 
Massachusetts,  to  be  obliged  to  buy  a  portion  of  the  articles 
of  subsistence  for  her  population ;  and  the  deficiency  in  our 
own  case,  it  may  be  remarked,  is  relatively  greater  than  in  the 
mother  country ;  for  we  never  raise  food  enough  for  our  own 
consumption,  while  the  English  crops,  in  ordinary  years,  suffice 
for  nearly  the  whole  English  demand.  In  both  cases,  it  may 
be  said,  the  deficiency  proceeds,  not  from  natural  causes,  but 
from  the  choice  of  man.  It  is  found  more  profitable  to  de- 
vote the  larger  portion  of  the  labor  of  the  two  countries  to 
commerce  and  manufactures,  and  to  buy  a  portion  of  the  food 
that  is  required,  than  to  cultivate  the  soil  to  the  full  extent  of 
which  it  is  capable,  and  thereby  raise  the  whole  stock  of  pro- 
visions. If  a  given  amount  of  labor  employed  in  spinning  yarn 
and  weaving  cloth  will  produce  enough  to  buy  two  bushels  of 
grain,  while,  if  devoted  immediately  to  tilling  the  ground,  it 
will  raise  only  one  bushel,  it  is  certain  that  the  labor  wiU  be 


THE    THEORY    OF    RENT.  177 

given  to  manufactures,  and  not  to  agriculture ;  and  the  defi- 
ciency of  food  thus  created,  (if  it  can  be  called  a  deficiency,) 
will  afford  no  reason  for  impeaching  the  bounty  of  Providence, 
and  no  cause  for  fear  lest  the  increase  of  the  population  should 
outstrip  the  increase  of  the  supply  of  food. 

We  say,  then,  that  this  theory  of  rent,  being  inapplicable 
and  unsound  in  the  case  of  America,  is  consequently  untrue  in 
its  application  to  Europe  generally,  and  even  to  England.  An 
increase  of  the  English  population  does  create  a  larger  demand 
for  food.  But  this  demand  does  not  oblige  the  people  to  have 
recourse  to  the  poorer  soils  in  order  to  enlarge  the  crops,  nor 
even  to  apply  more  capital  with  less  profit  to  the  soil  already 
under  tillage  ;  it  simply  obliges  them  to  import  more  food  from 
America  and  the  countries  on  the  Baltic  and  the  Black  Sea. 
And  the  supply  which  these  countries  may  afford  is  indefinite  ; 
the  only  reason  why  they  do  not  now  send  more  corn  to  Eng- 
land, is  that  England  needs  no  more.  There  is  every  reason 
to  believe,  that  if  Great  Britain  should  altogether  cease  to  be 
a  grain-producing  country,  if  it  should  devote  all  its  fields  to 
pasturage,  these  other  countries  would  still  keep  the  English 
market  bountifully  stocked  with  grain,  and  with  no  material 
enhancement  of  its  price.  The  possible  supply  of  wheat  and 
maize  from  the  back  country  of  the  United  States  defies  all 
calculation ;  it  is  kept  dammed  up  there  now,  because  the  pro- 
ducers know,  if  it  were  thrown  upon  the  market  at  once,  that 
it  would  sink  the  price  below  the  cost  of  production.  But  be- 
cause it  exists  in  excess,  if  the  capacity  of  the  market  were  in- 
creased, the  supply  might  be  indefinitely  enlarged  without  any 
material  or  even  perceptible  enhancement  of  price.  There  is 
no  more  risk  that  our  back  country  will  be  drained  of  wheat, 
than  that  the  great  Mississippi  will  drain  it  of  water.  Lower 
the  bar  at  its  mouth,  or  sink  the  level  of  the  broad  ocean  itself, 
and  the  rivers  will  yet  continue  to  run,  for  their  springs  are  pe- 
rennial. The  bounty  of  God  feeds  them.  Instead  of  saying, 
then,  that  population  presses  on  the  means  of  subsistence,  the , 
true  proposition  would  be,  that  the  supply  of  food  presses  hard 
upon  the  increase  of  population.  The  force  of  the  pressure 
being  thus  turned  the  other  way,  the  supply  of  food  might  be 
indefinitely  increased,  without  any  enhancement  of  price  from 
the  enlarged  demand. 


178 


THE    THEORY    OF    RENT. 


Thus  much  for  the  contradiction  of  the  theory  by  the  facts 
in  the  case.  The  refutation  of  it  in  principle,  or  by  abstract 
reasoning,  is  equally  easy.  And  first,  it  is  to  be  observed, 
that  the  natural  fertility,  or  what  Ricardo  calls  the  original 
and  inherent  powers  of  the  soil,  as  an  element  of  rent,  are 
wholly  insignificant  in  comparison  with  nearness  to  market. 
The  most  barren  soils  in  the  world,  even  hard  rock,  pure  sand, 
or  stagnant  marsh,  should  a  populous  and  wealthy  city  spring 
up  in  the  neighborhood,  will  yield  rent,  often  a  large  rent,  be- 
cause they  afford  a  field  which  human  industry  and  skill  can 
convert  into  a  productive  garden.  On  the  other  hand,  soil  of 
the  greatest  natural  fertility,  if  it  be  far  distant  from  any  mar- 
ket for  agricultural  produce,  will  command  no  price  and  yield 
no  rent.  For  instances  of  the  former  class,  take  the  larger  por- 
tion of  the  soil  of  Belgium  and  Holland,  much  of  which  has 
been  literally  reclaimed  from  the  sea,  against  which  it  is  now 
protected  by  stupendous  dikes,  and  a  still  larger  part  was 
originally  barren  sand,  on  which  it  was  first  necessary  to  plant 
coarse  grass,  the  roots  of  which  might  protect  it  from  being 
perpetually  shifted  by  the  winds.  Yet  these  broad  districts  of 
sea  and  sand  are  now  the  gardens  of  Europe,  shaming  even 
the  wonders  of  English  farming  by  the  fulness  of  their  crops. 
Two  and  a  half  acres  of  them  yield  food  enough  for  a  family 
of  five  persons.  The  acclivities  of  the  Alps  in  Switzerland, 
dug  out  into  terraces,  and  blooming  with  the  olive  and  the 
vine,  —  and  many  an  acre  of  former  marsh  in  Cambridge  and 
Lincoln  counties,  England,  now  forming  rich  corn-fields,  —  are 
other  instances  of  land  made  productive  and  yielding  rent  by 
vicinity  to  a  market,  in  spite  of  the  greatest  natural  disadvan- 
tages. 

For  examples  to  corroborate  the  other  branch  of  the  state- 
ment, we  have  only  to  look  at  the  remote  West  of  our  own 
fair  land.  Thousands  of  square  miles  of  the  most  productive 
land  in  the  world,  in  Kanzas  and  Minnesota,  are  even  now 
lying  tenantless,  because  they  will  not  command  the  govern- 
ment price  of  only  $1.25  an  acre.  And  even  in  the  more 
thickly  settled  States  of  the  great  Mississippi  Valley,  many  a 
broad  region  yet  remains  waste  in  the  ownership  of  the  gov- 
ernment, far  superior  in  natural  advantages  to  the  soil  of  Bel- 
gium in  its  original  condition,  and  for  which,  notwithstanding, 


THE    THEORY    OF    RENT.  179 

no  one  will  give  this  almost  nominal  price.  The  reason  is, 
that  there  is  not  market  enough  in  the  neighborhood  to  take 
off  the  surplus  agricultural  produce.  If  the  population  should 
increase  in  numbers,  so  as  to  require  a  larger  amount  of  food, 
though  at  the  same  price  at  which  it  is  now  held,  this  waste 
land  would  soon  be  purchased  and  reduced  to  tillage. 

This  point  being  established,  then,  that  the  original  fertility 
of  the  soil  is  an  element  of  little  or  no  importance  in  the  the- 
ory of  rent,  we  have  only  to  consider  that  portion  of  Ricardo's 
doctrine  which  relates  to  comparative  distance  from  the  mar- 
ket. He  maintains,  that  land  bears  rent  in  proportion  to  its 
nearness  to  the  place  where  agricultural  produce  is  needed  and 
consumed ;  and  that  the  increase  of  population,  consequently, 
is  an  evil,  because  the  community  are  obliged  to  send  farther 
and  farther  off  for  their  supplies.  Here  is  the  great  and  obvi- 
ous fallacy,  of  supposing  that  the  population,  as  it  increases,  re- 
mains stationary,  or  on  the  same  spot,  so  that  the  grain  must  be 
brought  to  it  at  a  price  enhanced  by  the  cost  of  transportation. 
We  answer,  that,  instead  of  the  food  coming  from  a  distance  to 
the  population,  the  population  go  to  the  food.  The  nation  ex- 
pands over  more  space  as  it  increases  in  numbers.  The  tide 
of  emigration  sets  towards  the  waste  lands  in  a  current,  the 
velocity  and  depth  of  which  are  proportioned  to  the  increase  in 
the  volume  of  the  waters.  The  new-comers,  the  addition  to 
the  nation,  instead  of  raising  the  price  of  food  for  themselves 
and  their  predecessors,  actually  cheapen  it.  As  they  spread 
themselves  over  the  waste  lands,  and  reduce  them  to  cultiva- 
tion, they  not  only  raise  food  enough  for  themselves,  but  they 
increase  the  surplus  which  is  sent  to  market,  to  be  there  ex- 
changed for  manufactures  and  the  produce  of  foreign  climes. 

This  is  exemplified  in  the  history  of  our  own  New  England. 
The  average  rate  of  increase  of  the  population  here,  during  the 
last  thirty  years,  has  been  about  17  per  cent  for  every  ten 
years,  while  for  the  whole  United  States  it  has  been  about  34 
per  cent,  or  twice  as  large.  Why  is  this,  since  the  excess  of 
births  over  deaths  is  probably  as  great  in  New  England  as  in 
any  other  portion  of  the  country?  The  answer  is  obvious. 
One  half  of  those  who  are  born  here,  and  survive  to  the  age  of 
maturity,  (one  half  of  the  surplus,  I  mean,  over  those  who  are 
needed  to  compensate  for  the  deaths,  and  thus  to  keep  up  the 


180  THE    THEORY    OF    RENT. 

population  to  its  original  number,)  emigrate  to  the  West,  and 
there  take  then-  part  in  the  great  work  of  settling  the  wild 
lands,  and  reducing  them  to  tillage.  And  so  successful  have 
their  labors  been,  that  the  price  of  grain  and  other  agricultural 
produce  has  not  risen  in  proportion  to  the  increase  of  our  num- 
bers, as  it  ought  to  have  done,  if  Ricardo's  theory  were  true  ; 
the  average  price  of  food,  all  over  the  country,  has  fallen  since 
1800,  though  since  that  time  our  population  has  been  quad- 
rupled, and  though  our  exports  of  provisions  also  have  in- 
creased to  an  immense  extent. 

We  come,  then,  to  a  theory  of  rent  which  differs  very  widely 
from  that  of  Ricardo's.  Rent  depends,  not  on  the  increase,  but 
on  the  distribution,  of  the  population.  It  arises  from  the  excess 
of  the  local  demand  over  the  local  supply,  and  is  therefore  ulti- 
mately regulated  by  the  expense  and  inconvenience  of  bringing 
the  food  from  a  distance,  or  by  the  discomforts  and  privations 
which  attend  the  removal  of  a  portion  of  the  people  to  a  new 
home.  The  migration  is  not  necessarily  directed  to  another 
country ;  the  more  remote  and  less  populous  counties  or  states 
may  receive  the  surplus  population  of  the  metropolitan  region 
and  the  manufacturing  districts,  and  an  additional  supply  of 
food  will  then  be  obtained  from  the  agricultural  labor  of  those 
who  have  thus  found  a  new  home.  An  increase  in  the  num- 
bers of  the  people  may  thus  be  followed  by  more  than  a  pro- 
portional increase  of  the  means  of  subsistence.  The  price  of 
food,  then,  will  not  vary  in  proportion  to  the  rent ;  on  the  con- 
trary, the  rent  may  increase  indefinitely,  while  the  price  of  food 
is  diminishing.  A  livelihood  may  be  more  easily  and  cheaply 
obtained  by  commercial  or  manufacturing  industry  in  a  great 
city  or  a  populous  region,  notwithstanding  the  considerable 
outlay  required  for  rent,  than  by  tilling  the  ground  in  a  district 
where  land  may  be  hired  for  a  trifling  sum,  or  even  purchased 
at  a  nominal  price ;  and  still  the  extension  of  agriculture  may 
be  so  great,  as  the  forest  is  cleared  up  and  the  prairie  planted, 
that  corn  and  flour  may  be  bought  by  the  inhabitants  of  cities 
more  cheaply  than  ever.  This  is  not  mere  theory,  but  fact ;  it 
is  but  a  recital  of  the  mingled  experience  of  the  manufactur- 
ing districts  of  New  England  and  the  border  districts  of  culti- 
vation in  the  Westera  States. 

Not  only  in  America,  but  in  Great  Britain  and  Ireland,  and 


THE    THEORY    OF    RENT.  181 

indeed  throughout  the  civilized  world,  it  is  notorious  that  rent 
is  produced  and  increased,  or,  in  other  words,  that  value  is 
given  to  the  land,  by  creating  a  market  for  agricultural  prod- 
uce in  the  neighborhood  of  the  land  whence  that  produce  is 
obtained ;  that  is,  by  collecting  a  town  or  civic  population,  en- 
gaged in  manufactures  and  commerce,  who  have  the  means  to 
buy  the  wheat.  By  collecting  such  a  population,  I  say ;  not 
by  creating  one,  or  by  making  the  total  number  of  the  whole 
people  larger,  as  Ricardo's  theory  requires.  It  is  not  the  want 
of  a  larger  supply  of  food,  but  the  altered  locality  of  the  de- 
mand, and  the  altered  habits  and  occupations  of  the  people, 
which  swell  the  value  of  the  land  and  enhance  the  rent. 

And,  conversely,  the  population  might  be  considerably  en- 
larged, and  more  food  consequently  be  required,  at  the  very 
time  when  rents  were  falling  throughout  the  country,  if  the 
process  of  dispersion  should  be  going  on  at  the  same  period, 
the  people  leaving  the  manufacturing  towns  and  the  centres  of 
commerce,  and  spreading  themselves  over  the  face  of  the  coun- 
try, so  that  each  family  would  come  nearer  the  particular  spot 
of  land  that  feeds  it.  This  is  the  evil  often  experienced  here 
in  America,  where  many  towns  and  smaller  cities  upon  the 
Atlantic  coast,  which  were  prosperous  and  wealthy  in  the  lat- 
ter part  of  the  last  century,  and  up  to  the  close  of  the  war  in 
1815,  have  since  ceased  to  advance,  and  even  retrograded,  in 
riches  and  population,  many  of  the  citizens  joining  the  great 
tide  of  migration  to  the  Western  States,  because  the  policy  of 
the  national  government  was  no  longer  favorable  to  manufac- 
tures, the  fisheries,  and  commerce.  Very  recently,  the  estab- 
lishment of  railroads,  and  other  local  causes,  have  somewhat 
checked  this  tendency  to  dispersion;  but  the  account  here 
given  is  still  applicable,  in  a  greater  or  less  degree,  to  such  sea- 
ports in  New  England  as  Portsmouth,  Newburyport,  Salem, 
Nantucket,  Newport,  and  New  London,  and  to  some  formerly 
nourishing  towns  on  Chesapeake  Bay  and  the  Southern  At- 
lantic coast.  Of  course,  as  these  towns  dwindled,  the  value 
and  the  rent  of  farms  in  their  immediate  vicinity  were  also 
depressed,  and  agriculture,  instead  of  advancing,  visibly  retro- 
graded, the  prices  of  all  kinds  of  rural  produce  being  kept  down 
by  the  abundant  supplies  which  began  to  arrive  from  the  newly 
cleared  regions  at  the  West.  Yet  all  this  while  the  total  pop- 
16 


182  THE    THEORY    OF    RENT. 

ulation  of  the  United  States  was  increasing  with  unparalleled 
rapidity,  and,  if  Ricardo's  theory  were  true,  rent  ought  to  have 
advanced  pari  passu. 

To  illustrate  the  opposite  result,  the  rise  of  rents  and  of  the 
prices  of  agricultural  produce  produced  by  the  concentration 
of  the  people  in  manufacturing  districts  and  towns,  I  might  re- 
fer to  such  obvious  instances  as  the  neighborhood  of  Lowell  in 
Massachusetts,  Manchester  in  New  Hampshire,  Rochester  in 
New  York,  Pittsburg  in  Pennsylvania,  and  many  others,  the 
rapid  and  immense  increase  of  which  in  population  and  wealth 
seems  almost  fabulous.  It  is  the  rapidity  of  this  increase,  in- 
deed, which  proves  that  the  result  is  attributable  to  bringing 
the  people  together,  and  not  to  the  natural  growth  of  the  total 
population.  It  cannot  have  been  from  the  increased  number 
of  births,  that  Rochester,  for  instance,  which  had  a  population 
of  only  1,500  in  1820,  numbered  over  9,000  inhabitants  in 
1830,  over  20,000  in  1840,  and  over  36,000  in  1850 ;  or  that 
Lowell,  whose  population  in  1830  was  about  6,500,  numbered 
over  33,000  in  1850.  For  illustrations  from  Great  Britain,  in 
which  country  alone  does  Ricardo's  theory  of  rent  seem  even 
plausible,  I  need  only  bring  together  a  few  passages  from  an 
able  essay  recently  published  by  a  French  writer,  M.  Leonce 
de  Lavergne,  on  the  "  Rural  Economy  of  England,  Scotland, 
and  Ireland,"  *  contrasted  with  that  of  France. 

Up  to  the  time  of  Arthur  Young,  he  says,  "the  English 
farmers  had,  like  all  those  of  the  Continent,  worked  with  little 
view  to  a  market.  Most  agricultural  productions  were  con- 
sumed on  the  spot  by  the  producers  themselves ;  and  although 
in  England  more  was  sold  for  consumption  beyond  the  farm 
than  anywhere  else,  it  was  not  export  which  regulated  produc- 
tion. Arthur  Young  was  the  first  who  made  the  English  agri- 
culturists understand  the  increasing  importance  of  a  market ; 
that  is  to  say,  the  sale  of  agricultural  produce  to  a  population 
not  contributing  to  produce  it  This  non-agricultural  popula- 
tion, which  up  to  that  time  was  inconsiderable,  began  to  de- 
velop, and  since  then  its  increase  has  been  immense,  owing  to 
the  expansion  of  manufactures  and  commerce.  Everybody 


*  Translated  from  the  French,  with  Notes,  by  a  Scottish  Farmer.    Edinburgh 
and  London :  W.  Blackwood  and  Sons.     1855.    Chapters  11, 18,  20. 


THE    THEORY    OF    RENT.  183 

knows  what  enormous  progress  the  employment  of  steam  as  a 
motive  power  has  effected  in  British  manufactures  and  com- 
merce during  the  last  fifty  years.  The  principal  seat  of  this 
amazing  activity  is  in  the  northwest  of  England,  the  county  of 
Lancaster,  and  its  neighbor,  the  "West  Riding  of  Yorkshire. 
There  Manchester  works  cotton,  Leeds  wool,  Sheffield  iron, 
and  the  port  of  Liverpool,  with  its  constant  current  of  exports 
and  imports,  feeds  an  indefatigable  production." 

"  One  third  of  the  English  nation  is  concentrated  on  these 
two  points,  —  London  in  the  south,  and  the  manufacturing 
towns  of  Lancashire  and  the  West  Riding  in  the  north.  These 
human  ant-hills  are  as  rich  as  they  are  numerous.  What  be- 
comes of  the  immense  amount  of  wages  paid  to  this  mass  of 
workmen  every  year  ?  It  goes,  in  the  first  place,  to  pay  for 
meat,  beer,  milk,  butter,  cheese,  which  are  directly  supplied  by 
agriculture,  and  woollen  and  linen  clothing,  which  it  indirectly 
furnishes.  There  exists,  consequently,  a  constant  demand  for 
productions  which  agriculture  can  hardly  satisfy,  and  which  is 
for  her,  in  some  measure,  an  unlimited  source  of  profit.  The 
power  of  these  outlets  is  felt  over  the  whole  country ;  if  the 
farmer  has  not  a  manufacturing  town  beside  him  to  take  off 
his  produce,  he  has  a  port ;  and  should  he  be  distant  from  both, 
he  brings  himself  into  connection  with  them  by  canal,  or  by 
one  or  more  lines  of  railway." 

"  If  Lancashire  is  the  most  productive  district  in  the  world, 
it  is  also  the  dullest.  Let  any  one  fancy  an  immense  morass, 
shut  in  between  the  sea  on  one  side  and  mountains  on  the 
other ;  stiff  clay  land,  with  an  impervious  subsoil  everywhere 
hostile  to  farming ;  add  to  this  a  most  gloomy  climate,  contin- 
ual rain,  a  constant  cold  sea-wind,  besides  a  thick  smoke  shut- 
ting out  what  little  light  penetrates  the  foggy  atmosphere ;  and 
lastly,  the  ground,  the  inhabitants,  and  their  dwellings  com- 
pletely covered  with  a  coating  of  black  dust,  —  fancy  all  this, 
and  some  idea  may  be  formed  of  this  strange  county,  where 
the  air  and  the  earth  seem  only  one  mixture  of  coal  and  water ! 
Such,  however,  is  the  influence  upon  production  of  an  inex- 
haustible outlet,  that  these  fields,  so  gloomy  and  forsaken,  are 
rented  at  an  average  of  30s.  ($  7),  and  in  the  immediate  en- 
virons of  Liverpool  and  Manchester,  arable  land  lets  as  high 
as  £  4  ($  20),  an  acre.  There  are  not  many  soils  in  the  most 


184  THE    THEORY    OF    RENT. 

sun-favored  lands  which  can  boast  such  rents.  At  the  sight  of 
such  wonders,  one  is  almost  tempted  with  the  Latin  poet  to 
exclaim, 

'Salve,  magna  parens  frugum,  Satnrnia  tellus, 

Magna  virfim  ! ' " 

"  If  England's  history  as  a  manufacturing  country  is  brilliant, 
what  shall  we  say  of  Scotland  ?  We  may  judge  by  a  single 
example.  The  counties  of  Lanark  and  Renfrew,  where  man- 
ufactures and  commerce  are  most  active,  have  increased  in 
population,  in  the  space  of  a  hundred  years,  from  100,000  to 
600,000,  and  Glasgow  alone  from  20,000  to  400,000.  Clydes- 
dale, once  deserted,  now  rivals  Lancashire  for  its  collieries, 
manufactories,  and  immense  shipping  trade.  In  1750,  the 
germ  even  of  this  wealth  did  not  exist ;  it  was  English  capital, 
combined  with  the  plodding  and  frugal  genius  of  the  Scotch 
people,  which  in  so  short  a  time  made  that  unproductive  dis- 
trict what  it  now  is.  Strong  proof  this  of  the  advantages 
which  may  accrue  to  a  non-manufacturing  country  by  being 
associated  with  one  rich  and  already  industrial !  Scotland,  as 
long  as  she  remained  separate  from  England,  and  dependent 
on  her  own  resources,  only  vegetated ;  but  as  soon  as  the  cap- 
ital and  experience  of  her  powerful  neighbor  broke  in  upon  her, 
she  took  a  start  quite  equal  to  England.  This  sudden  growth 
of  manufactures  has  been  increased,  as  always  happens,  by  a 
corresponding  advance  in  agriculture.  In  proportion  as  com- 
merce and  manufactures  multiply  men  and  augment  wages, 
agriculture  renews  its  efforts  to  supply  food  for  the  constantly 
increasing  mass  of  consumers ;  and  in  a  limited  country,  like 
the  Lowlands,  a  population  such  as  that  of  Glasgow  and  its 
dependencies  causes  the  demand  for  agricultural  produce  to  be 
felt  over  its  whole  extent." 

In  England,  "the  manufacturing  districts  par  excellence, 
commencing  with  Warwickshire  in  the  south,  and  ending  with 
the  West  Riding  of  Yorkshire,  are  those  in  which  rents,  prof- 
its, and  agricultural  wages  rise  highest.  There  the  average 
rent  is  80s.  per  acre,  and  a  country  laborer's  wages  12s.  a 
week ;  whilst  in  the  district  exclusively  agricultural,  lying  south 
of  London,  the  average  rent  is  not  more  than  205.  per  acre, 
and  wages  85.  a  week.  The  intermediate  counties  approach 
more  or  less  to  these  two  extremes,  according  as  they  are  more 


THE    THEORY    OF    RENT.  185 

or  less  manufacturing,  and  everywhere  the  rate  of  land  and 
wages  is  a  sure  criterion  of  the  development  of  local  industry. 

"It  is  pretty  generally  believed,  that  pauperism  prevails 
more  in  the  manufacturing  than  in  other  districts.  This  is 
quite  a  mistake."  It  appears  from  the  official  returns,  that  in 
the  manufacturing  counties,  "  the  poor's  rate  is  about  Is.  in  the 
pound,  or  3s.  to  4s.  a  head,  and  the  number  of  poor  3  to  4  per 
cent  of  the  population ;  whilst  in  the  agricultural  counties,  it 
exceeds  2s.  in  the  pound,  or  10s.  a  head,  and  the  number  of 
paupers  is  from  13  to  16  per  cent  of  the  population.  The 
cause  of  this  difference  is  easily  understood;  the  number  of 
paupers  and  the  cost  of  their  maintenance  increases  as  the  rate 
of  wages  becomes  lower.  Although  the  working  population 
be  three  or  four  times  more  dense  in  the  manufacturing  than 
in  other  parts  of  the  country,  its  condition  there  is  better,  be- 
cause it  produces  more." 

"  If  we  transport  ourselves  to  France,  to  the  most  backward 
departments  of  the  centre  and  south,  what  do  we  there  find  ? 
A  thinly  scattered  population,  at  the  most,  not  exceeding  on  an 
average  one  third  that  of  the  English,  —  one  head  only,  in  place 
of  three,  to  five  acres,  —  and  that  population  almost  entirely 
agricultural ;  few  or  no  large  towns,  little  or  no  manufactures, 
trade  confined  to  the  limited  wants  of  the  inhabitants ;  the 
centres  of  consumption  distant,  means  of  communication  cost- 
ly and  difficult,  and  expenses  of  transport  equal  to  the  entire 
value  of  the  produce.  The  cultivator  has  little  or  nothing  to 
dispose  of.  Why  does  he  work  ?  To  feed  himself  and  his 
master  with  the  produce  of  his  labor.  The  master  divides  the 
produce  with  him  and  consumes  his  portion ;  if  it  is  wheat  and 
wine,  master  and  metayer  eat  wheat  and  drink  wine ;  if  it  is 
rye,  buckwheat,  potatoes,  these  they  consume  together.  Wool 
and  flax  are  shared  in  like  manner,  and  serve  to  make  the 
coarse  stuffs  with  which  both  clothe  themselves.  Should  there 
happen  to  remain  over  a  few  lean  sheep,  some  ill-fed  pigs,  or 
some  calves,  reared  with  difficulty  by  over-worked  cows,  whose 
milk  is  disputed  with  their  offspring,  these  are  sold  to  pay 
taxes. 

"  In  this  state  of  things,  as  there  is  no  interchange,  the  culti- 
vator is  obliged  to  produce  those  articles  which  are  most  ne- 
cessary for  life,  —  that  is  to  say,  the  cereal  grains :   if  the  soil 
16* 


186  THE    THEORY    OF    RENT. 

yields  little,  so  much  the  worse  for  him  ;  he  has  no  choice,  he 
must  produce  com  or  die  of  hunger.  Now,  on  bad  land,  there 
is  no  more  expensive  cultivation  than  this ;  even  on  good,  if 
care  is  not  taken,  it  soon  becomes  burdensome ;  but  under 
these  conditions  of  farming,  no  one  thinks  of  taking  account 
of  the  expense.  The  labor  is  not  for  profit,  but  for  life ;  cost 
what  it  may,  corn  must  be  had,  or  at  all  events,  rye.  As  long 
as  the  population  is  scanty,  the  evil  is  not  overwhelming,  be- 
cause there  is  no  want  of  land :  long  fallows  enable  the  land 
to  produce  something ;  but  as  soon  as  the  population  begins 
to  increase,  the  soil  ceases  to  be  sufficient  for  the  purpose ; 
and  a  time  soon  arrives,  when  the  population  suffers  severely 
for  want  of  food." 

"-  That  rent  depends  upon  the  distribution,  and  not  upon  the 
increase,  of  the  population,  may  be  easily  seen  by  putting  the 
extreme  case.  Suppose  the  inhabitants  of  a  country  distrib- 
uted with  perfect  evenness  over  its  territory,  each  family  resid- 
ing upon  the  centre  of  the  spot,  say  ten  or  twelve  acres  in 
extent,  which  feeds  it.  While  the  population  is  small,  a  dis- 
trict of  limited  extent  may  supply  homesteads  for  ah1  the  inhab- 
itants. As  the  people  increase  in  number,  suppose  additional 
lots,  upon  the  outskirts  of  the  former  settlements,  to  be  laid 
out  for  the  new  families.  It  is  not  necessary  that  the  soil 
should  be  of  equal  fertility  throughout  the  land,  so  that  all  the 
farms  should  consist  of  the  same  number  of  acres.  In  the  more 
productive  districts,  six  or  eight  acres  may  suffice  for  a  family ; 
in  the  less  favored  ones,  sixteen  or  twenty  may  be  needed. 
The  only  essential  point  is,  that  each  family  should  have 
enough  land,  and  no  more  than  enough,  for  its  own  Wants. 

Under  these  circumstances,  it  is  evident,  the  land  would  not 
yield  any  rent ;  there  would  be  enough  for  all.  Monopoly,  or 
exclusive  appropriation,  being  impossible,  a  price  would  no 
more  be  set  upon  the  land,  than  upon  the  air  or  the  light.  No 
one  would  think  of  charging  rent,  any  more  than  of  levying 
tolls  for  the  right  to  cross  the  broad  ocean.  And  it  is  conceiv- 
able, that  this  state  of  things  should  exist  over  the  whole  earth, 
and  should  continue  for  many  centuries  to  come.  Islands  of 
limited  extent,  like  the  British  Isles,  might  indeed  be  filled  up, 
or  completely  occupied,  the  people  having  become  so  numer- 
ous that  no  more  land  could  be  had  for  the  new  families.  In 


THE    THEORY    OF    RENT.  187 

such  case,  the  new  families  would  have  to  emigrate,  as  they 
are  now  actually  obliged  to  do ;  but  they  would  find  abun- 
dance of  unoccupied  land  in  America,  Australia,  and  elsewhere. 
It  has  already  been  demonstrated,  that  the  earth  does  not  con- 
tain a  hundredth  part  of  the  population  it  is  capable  of  feed- 
ing. "  Malte-Brun  has  said,  that  the  soil  of  Europe  alone 
could  afford  ample  food  for  a  thousand  millions  of  inhabitants ; 
being  nearly  five  times  its  present  number,  and  more  by  one 
fifth  than  the  whole  actual  population  of  the  globe."  Consid- 
ering that  the  facilities  for  emigration  are  rapidly  multiplying, 
and  that  already  over  400,000  human  beings  annually  cross 
the  Atlantic  to  seek  a  new  home,  it  is  obvious  that  there  is  no 
practical  difficulty  in  dividing  the  increase  of  population  among 
the  most  distant  regions  of  the  earth,  or  wherever  food  can  be 
most  easily  obtained. 

But  if  the  population  of  one  country,  or  of  the  whole  globe, 
were  thus  distributed  with  perfect  evenness,  each  family  resid- 
ing upon  the  spot  that  furnished  it  with  food,  though  there 
would  be  no  rent,  it  is  obvious  that  there  would  be  little  or  no 
division  of  labor,  and,  consequently,  no  progress  in  civilization 
and  the  arts,  and  no  advancement  in  opulence.  Mankind 
would  begin  to  retrograde  to  a  condition  as  low  as  that  in 
which  any  portion  of  them  have  yet  been  found.  The  labor 
of  far  the  larger  portion  of  each  family  would  have  to  be  de- 
voted to  agriculture,  in  order  to  obtain  the  necessary  suste- 
nance from  the  ground ;  and  as  the  labor  of  the  remaining  part 
would  not  suffice  to  renew  and  keep  in  repair  the  stock  of 
tools,  domestic  utensils,  and  household  comforts,  these  would 
soon  be  expended  or  worn  out.  As  tools  become  imperfect 
and  deficient,  more  labor  must  be  given  to  tillage.  The  pro- 
cesses of  agriculture  would  thus  rapidly  degenerate,  till  at  last 
the  incessant  toil  of  the  whole  family  would  produce  only  a 
scanty  supply  of  the  coarsest  sustenance,  and  from  the  want  of 
leisure,  knowledge  and  civilization  would  die  out. 

But  experience  even  of  the  commencement  of  these  evils 
would  teach  mankind  their  appropriate  and  easy  remedy. 
Several  families  would  unite,  in  order  to  obtain  the  benefits  of 
a  division  of  labor.  Some  would  devote  themselves  exclu- 
sively to  the  manufacture  of  agricultural  implements  and 
household  articles,  while  the  labor  of  the  others  would  supply 


188  THE    THEORY    OF    RENT. 

them  with  food.  As  manufacturing  operatives  must  work 
near  each  other,  the  ground  originally  allotted  to  a  single  fam- 
ily would  come  to  be  tenanted  by  many,  and  would  form  the 
nucleus  of  a  town.  But  a  town  is  necessarily  a  market  for  the 
sale  of  agricultural  produce  and  the  purchase  of  manufactured 
commodities.  From  the  advantages  which  the  town  would 
thus  afford,  the  land  in  its  immediate  vicinity,  being  limited  in 
quantity,  would  assume  a  value,  or,  in  other  words,  would  be- 
gin to  yield  a  rent.  Upon  any  hypothesis  that  can  be  framed, 
even  upon  Kicardo's  doctrine,  the  origin  of  rent  must  be  traced 
to  monopoly,  —  to  a  necessarily  limited  supply  met  by  an  un- 
limited demand.  Only  a  small  number  of  farms  of  the  origi- 
nal size,  from  six  to  twenty  acres,  can  have  the  advantage  of 
immediate  proximity  to  the  newly  formed  manufacturing  vil- 
lage ;  the  occupants  of  these  farms  would  be  better  furnished 
with  tools,  and  more  able  to  exchange  their  products  for  man- 
ufactured goods.  The  occupants  of  farms  at  a  distance  would 
be  willing  to  purchase  these  advantages  of  them,  —  to  offer  two 
or  three  acres  remote  from  market,  in  exchange  for  one  acre  ad- 
joining a  town.  Thus  rent  would  begin,  not  at  all  as  a  conse- 
quence of  the  absolute  increase  of  the  population,  for  the  total 
population  might  be  stationary  or  even  retrograding  while 
these  changes  were  going  on,  but  as  a  consequence  of  the  al- 
tered distribution  of  the  people  over  the  face  of  the  country. 

Malthus  and  Bicardo,  with  their  followers,  perceived  that  the 
origin  of  rent  must  be  attributed  to  monopoly  ;  for  the  value  of 
land,  so  far  as  it  consists  in  the  natural  and  inherent  qualities 
of  the  soil,  is  an  instance  of  the  existence  of  value  without  la- 
bor, and  therefore,  according  to  the  first  principles  of  Political 
Economy,  it  can  be  explained  only  by  a  limited  supply  and 
exclusive  appropriation.  But  they  failed  to  perceive  the 
causes  and  nature  of  the  monopoly,  or  to  trace  the  conse- 
quences of  the  application  of  their  own  doctrine.  They  im- 
agined that  the  high  rent  of  land  in  a  given  county  or  district 
is  only  a  particular  case  of  the  over-populousness  of  the  whole 
country  or  kingdom,  —  of  the  fact  that  the  whole  extent  of  ter- 
ritory is  insufficient  to  meet  the  wants  of  the  whole  population. 
They  supposed,  therefore,  that  the  rise  of  rent  properly  so 
called  must  be  uniform  throughout  the  whole  country,  and 
must  also  be  exactly  proportioned,  after  deducting  the  effects 


THE    THEORY    OF    RENT.  189 

of  agricultural  improvements,  to  the  increase  of  the  total  pop- 
ulation,—  two  suppositions  which  are  contrary  to  the  facts. 
The  notorious  fact,  that  not  even  England  is  yet  over-peopled, 
but  is  capable  of  supporting,  from  her  own  soil,  a  population 
thrice  as  dense  as  her  present  one,  as  is  proved  by  the  example 
of  the  most  densely  inhabited  portions  of  Belgium,  or  a  hundred 
times  as  dense,  if  we  consider  the  supplies  of  food  which  she 
might  obtain  from  abroad,  —  this  fact,  I  say,  they  endeavored 
to  explain  away  by  the  unfounded  assumptions  that  the  most 
fertile  land  is  always  the  first  occupied,  and  that  the  people  are 
compelled,  by  every  increase  of  their  numbers,  to  have  recourse 
to  inferior  soils,  or  to  apply  additional  capital  to  the  ground 
with  constantly  diminishing  returns.  Not  the  more  fertile 
lands,  however,  but  those  which  are  nearer  to  cities  and  to 
populous  manufacturing  districts,  yield  the  higher  rent;  and 
the  highest  rents  of  all  are  obtained  from  land  that  is  not  used 
at  all  for  purposes  of  agriculture,  but  only  for  habitation  or 
manufacturing  purposes,  within  the  limits  of  the  cities  them- 
selves, —  a  phenomenon  of  which  the  theory  of  Ricardo  furnish- 
es no  explanation  whatever.  His  theory  is  applicable  only  to 
what  may  be  called  agricultural  rents ;  civic  rents,  the  ground- 
rents  of  houses  and  shops  in  crowded  cities,  afford  the  best  of 
all  instances  of  rent  properly  so  called,  as  they  are  free  from  the 
effects  of  the  great  disturbing  cause,  —  agricultural  improve- 
ments. These  ground-rents  do  not  depend  upon  the  magni- 
tude of  the  population  of  the  city,  or  upon  its  rate  of  increase ; 
they  rise  and  fall  in  different  streets,  under  the  varying  demand 
produced  by  the  changes  of  business  and  the  mutations  of 
fashion.  In  London,  they  have  risen  enormously  high  in  Bel- 
gravia,  and  fallen  proportionally  in  what  was  the  fashionable 
part  of  the  metropolis  a  century  ago  ;  in  the  most  crowded  por- 
tions of  the  city  proper,  they  are  probably  no  higher  than  they 
were  in  the  time  of  George  III.,  and  do  not  certainly  equal 
some  in  Washington  Street,  Boston,  the  population  of  which 
city  is  not  one  twelfth  part  as  great  as  that  of  London.  In 
the  English  metropolis,  the  population,  as  it  increases  in 
number,  necessarily  spreads  itself  over  more  space ;  and  there- 
fore it  may  be  doubted  whether  the  aggregate  ground-rent 
of  those  portions  of  the  city  which  were  densely  inhabited 
at  the  beginning  of  this  century  is  any  greater  now  than  it 


190  THE    THEORY    OF    RENT. 

was  in  1800,  though  the  population  of  all  England  meanwhile 
has  doubled. 

In  the  United  States,  the  want  of  local  attachments  and  the 
restless  and  migratory  character  of  the  population  have  drawn 
attention  to  the  fact,  that  rents  begin,  or  the  land  acquires 
value,  as  fast  as  the  vicinity  is  peopled.  The  favorite  form  of 
speculation  here,  the  easiest  and  most  common  mode  of  money- 
getting,  is  the  acquisition  of  a  tract  of  land  in  some  neighbor- 
hood where  the  circumstances  indicate  that  a  new  town  or 
city  must  soon  spring  up.  A  fortune  is  thus  easily  acquired, 
as  the  land  acquires  value  before  any  labor  is  expended  upon 
it,  and  long  before  the  necessities  of  an  increasing  population 
would  require  it  to  be  inhabited,  or  even  cultivated.  In  Eng- 
land, the  more  stationary  habits  of  the  population  have  con- 
cealed this  fact,  and  as  the  land  slowly  rose  in  value  with  the 
advancement  of  opulence  and  the  gradual  increase  in  the  num- 
ber of  the  whole  people,  Anderson's  or  Ricardo's  theory  of  rent 
seemed  plausible  enough.  Their  doctrine  seemed  to  illustrate 
the  phenomenon,  otherwise  apparently  inexplicable,  of  the 
steady  growth  of  the  fortunes  of  the  aristocracy  and  the  landed 
gentry,  who  neither  labor  nor  spin,  proportionally  with  the  in- 
crease of  the  wealth  of  the  commercial  and  manufacturing 
classes,  whose  prosperity  is  attributable  to  their  own  industry 
and  enterprise.  Yet  even  in  England,  there  has  been  a  regular 
movement  of  the  population,  a  steady  drain  from  the  agricul- 
tural counties,  and  a  filling  up  of  the  manufacturing  districts. 
The  increase  of  the  population  during  the  last  fifty  years,  in 
the  agricultural  counties  of  Hereford,  the  North  Riding  of 
York,  and  Wilts,  has  been  respectively  but  31,  35,  and  38  per 
cent;  while  in  Stafford,  for  the  same  period,  it  has  been  151, 
in  Durham,  160,  and  in  Lancaster,  201  per  cent.  And  the 
consequence  has  been  the  unprecedented  rise  of  rents,  already 
mentioned,  in  the  counties  last  named,  while  in  Wilts,  Here- 
ford, and  the  North  Riding,  it  may  be  doubted  whether  the 
average  annual  value  of  the  land,  excluding  the  improvements 
effected  by  capital,  is  any  greater  than  it  was  half  a  century 
ago. 

The  rise  of  rents,  as  thus  explained,  is  no  hardship  for  those 
who  are  not  landholders,  and  does  not  tend  to  depress  the  "la- 
boring part  of  the  population.  Those  who  pay  these  higher 


THE    THEORY    OF    RENT.  191 

V 

rents,  or  the  higher  prices  of  corn  which  produce  them,  are 
compensated  by  the  advantages  they  obtain  through  their  vi- 
cinity to  a  market.  In  fact,  the  enhancement  of  price  for  the 
burghers  or  citizens  is  merely  nominal ;  they  obtain  more,  and 
have  a  readier  sale,  for  the  manufactured  goods  which  they 
produce,  and  pay  more  for  the  corn  which  they  consume,  the 
one  result  counterbalancing  the  other.  What  matters  it  to  the 
laborer,  if  he  pays  more  rent  for  his  dwelling,  and  a  higher 
price  for  his  corn  and  potatoes,  provided  that  the  additional 
wages  which  he  receives  are  more  than  enough  to  meet  these 
additional  expenses  ?  The  positive  gain  to  the  community 
consists  in  the  saving  of  transportation  both  ways.  If  the 
population  were  not  concentrated,  it  would  be  necessary  to 
transport  the  agricultural  produce  a  long  distance  to  the  town 
where  it  is  consumed,  and  to  carry  the  manufactured  goods  an 
equal  distance  to  the  farmers  who  need  them.  Even  the  Eng- 
lish economists  admit,  that  a  great  saving  is  effected  in  this 
respect  through  canals,  railways,  and  other  contrivances  which 
lessen  the  cost  of  transportation.  Is  it  not  still  a  greater  sav- 
ing to  do  away  with  the  necessity  of  these  improved  means  of 
transport,  and  with  the  cost  of  constructing  them,  by  bringing 
the  agriculturists  and  the  manufacturers  nearer  to  each  otherj? 

While  reasoning  in  favor  of  the  abolition  of  the  corn-laws,  Nj 
McCulloch  himself  presents  this  point  with  much  clearness. 
He  argues  that  the  repeal  of  these  laws  will  not  leave  the  Eng- 
lish farmer  destitute  of  protection,  for  he  will  still  have  an 
advantage  over  the  foreign  grower,  consisting  in  the  cost  of 
importing  the  grain  from  the  Baltic,  the  Black  Sea,  or  America. 
The  charges  of  transportation  and  the  profits  of  the  importer 
must  still  be  added  to  the  price  of  the  grain  at  the  place  where 
it  is  raised,  and  as  the  risk  is  great  in  dealing  in  corn,  this 
enhancement  of  price  must  be  considerable.  To  take  the  near- 
est source  of  supply,  for  instance,  he  computes  the  cost  of 
transporting  grain  from  the  upper  provinces  on  the  Bug  to 
Dantzic  to  be  from  7s.  to  9s.  a  quarter ;  and  thence  to  Lon- 
don, including  insurance  and  profit,  OS.  or  6s.  more.  If  the 
Polish  grower,  therefore,  receives  43s.  a  quarter  for  his  wheat, 
"it  could  not,  in  ordinary  years,  be  offered  for  sale  in  this 
country  for  less  than  from  55s.  to  58s.  a  quarter,  a  price  more 
than  sufficient  to  insure  the  continued  progress  of  British  agri- 


192  THE    THEORY    OF    RENT, 

culture."  *  If  there  were  manufacturing  cities  in  the  southern 
part  of  Poland,  the  farmer  there  might  obtain  33  per  cent  more 
for  his  wheat,  an  advantage  which  would  more  than  compen- 
sate him  for  paying  a  protective  duty  of  equal  amount  on 
manufactured  goods. 

It  is  as  much  for  the  interest,  then,  of  the  fanners  of  the 
Mississippi  valley,  as  of  the  manufacturers  themselves,  that  the 
American  system  of  protection  should  be  restored.  At  pres- 
ent, the  value  of  the  lands  at  the  West  is  kept  down  by  the 
distance  of  their  produce  from  a  market  The  cost  of  trans- 
porting a  barrel  of  flour  from  Cincinnati  to  New  York 
amounts,  at  ordinary  prices,  to  at  least  thirty  per  cent  of  its 
value  at  the  former  place  ;  the  cost  of  its  further  transportation 
to  Liverpool,  including  insurance  and  other  necessary  expen- 
ses, raises  this  proportion  to  about  forty  pet  cent.  Create  a 
manufacturing  population  in  Ohio  like  that  which  exists  in 
English  Lancashire,  and  the  price  of  flour  at  Cincinnati  would 
be  made  equal  to  its  price  at  Liverpool.  Free  trade  between 
England  and  Ohio,  then,  means  simply  that  Ohio  produce 
should  be  admitted  into  the  English  ports  under  what  we  may 
call  a  "  transportation  duty "  of  forty  per  cent ;  while,  owing 
to  the  great  value,  in  a  small  bulk,  of  the  finer  manufactures, 
English  produce  is  to  be  admitted  into  Cincinnati  at  a  duty  of 
only  fifteen  per  cent.  In  other  words,  the  opponents  of  protec- 
tion would  persuade  the  Ohio  farmer  that  it  is  better  for  him 
to  buy  English  broadcloth  at  $  1.70  a  yard,  and  sell  his  flour 
at  $  5.00,  than  to  buy  American  broadcloth  of  the  same  qual- 
ity at  $  2.00,  and  sell  his  flour  at  $  7.00.  The  depression  in 
the  value  of  Ohio  produce,  which  took  place  between  1847 
and  1852,  is  clearly  attributable  to  the  fact,  that  the  crowds 
of  laborers  discharged  from  our  unprosperous  manufacturing 
establishments,  and  the  400,000  immigrants  annually  landed 
on  our  shores,  have  been  driven  into  agriculture,  and  have  so 
increased  the  annual  product  of  Michigan,  Iowa,  and  Wiscon- 
sin, as  to  undersell  the  Ohio  farmer  at  his  own  door.  The  pro- 
tection of  our  manufactures  would  enlarge  the  home  market 
for  him,  through  the  very  means  which  are  now  swelling  the 
number  of  his  competitors. 

*  McCuUoch's  Geographical  Dictionary,  Art.  Dantzic. 


WAGES.  193 

# 

CHAPTER    XIV. 

•THE  CAUSES  WHICH  AFFECT  THE  RATE  OF  WAGES. 

THE  doctrine  of  the  English  economists  respecting  wages 
may  be  easily  inferred  from  their  two  theories,  which  have  just 
been  considered,  respecting  population  and  rent.  Putting 
aside  the  consideration  of  wages  reckoned  in  money,  as  these 
are  subject  to  merely  nominal  variations,  according  as  the 
value  of  money  rises  or  falls,  they  say  that  wages  rated  in 
commodities,  or  the  quantity  of  produce  apportioned  to  each 
laborer,  is  determined  by  the  ratio  which  the  capital  of  the  coun- 
try bears  to  its  laboring  population,  or  to  the  number  of  those 
who  work  for  hire.  By  capital,  however,  they  here  mean  "  only 
circulating  capital,  and  not  even  the  whole  of  that,  but  the  part 
which  is  expended  in  the  direct  purchase  of  labor.  To  this, 
however,  must  be  added  all  funds  which,  without  forming  a 
part  of  capital,  are  paid  in  exchange  for  labor,  such  as  the 
wages  of  soldiers,  domestic  servants,  and  all  other  unproduc- 
tive laborers."  *  The  aggregate  of  capital  or  wealth  devoted 
to  this  purpose,  to  the  payment  of  productive  or  unproductive 
labor,  may  be  termed  the  wages-fund  of  a  country ;  and  the 
share  of  it  which  each  laborer  receives  will  evidently  be  deter- 
mined by  its  amount,  compared  with  the  whole  number  of 
persons  seeking  employment. 

Thus  explained,  the  doctrine  is  a  mere  truism.  We  obtain 
no  insight  into  the  causes  which  regulate  the  rate  of  wages, 
when  we  are  merely  told  that  this  rate  depends  upon  the  whole 
sum  annually  expended  for  wages,  divided  by  the  whole  num- 
ber of  persons  who  share  this  sum  among  them.  But  as  it  is 
intended  to  be  understood,  this  proposition  is  merely  a  covert 
statement  of  the  theory  of  Malthus.  Assuming  it  to  be  impos- 
sible, by  any  measure  of  legislation  or  government  policy,  to 
increase  the  aggregate  funds  employed  in  hiring  laborers,  it  is 
affirmed  that  a  "  diminution  in  the  number  of  competitors  for 


*  J.  S.  Mill's  Political  Economy,  Vol.  I.  p.  401. 

17 


194  WAGES. 

hire  "  is  the  sole  means  of  raising  wages,  and  that  the  power 
and  responsibility  are  thus  placed  in  the  hands  of  the  laborers 
themselves.  If  they  will  refrain  from  overstocking  the  labor 
market,  then:  condition  as  a  class  may  be  bettered ;  but  "  every 
scheme  for  their  benefit,  which  does  not  proceed  on  this  as  its 
foundation,  is,  for  all  permanent  purposes,  a  delusion."  "  It  is 
impossible,"  continues  Mr.  Mill,  "  that  population  should  in- 
crease at  its  utmost  rate  without  lowering  wages.  Nor  will 
the  fall  be  stopped  at  any  point  short  of  that  which,  either  by 
its  physical  or  its  moral  operation,  checks  the  increase  of  pop- 
ulation." 

Here  is  the  great  mistake  of  confounding  the  undue  relative 
number  of  a  class,  with  a  general  excess  of  the  whole  popula- 
tion. The  former  evil  might  be  corrected  by  portioning  out 
society  anew,  through  the  gradual  influence  of  altered  laws,  so 
that  the  divisions  or  castes  which  are  too  thin  in  number,  might 
be  recruited  from  those  which  are  in  excess,  and  the  proper 
balance  be  thus  restored  without  the  necessity  of  adopting  any 
measures  which  would  affect  the  bulk  of  the  people.  The  lat- 
ter evil,  if  it  ever  really  existed,  could  be  removed  only  by  war, 
pestilence,  famine,  or  a  general  adoption  of  the  doctrine  of 
Malthus.  If  it  were  as  easy  in  England  as  it  is  in  this  coun- 
try for  a  common  laborer  to  become  a  master-mechanic,  or  a 
small  tradesman,  or  to  buy  a  farm  ;  or  if,  as  in  most  countries 
on  the  Continent,  the  bulk  of  the  laboring  community  pos- 
sessed either  peasant  properties,  or  a  kind  of  prescriptive  right 
to  farm  the  land  of  another  "  on  shares,"  as  metayers,  there 
would  be  no  need  of  preaching  abstinence  from  marriage  to 
them ;  they  would  not  compete  with  each  other  in  the  labor 
market,  if  the  rate  of  wages  were  not  high  enough  to  tempt 
them  to  forsake  their  independent  occupations.  The  number 
of  persons  in  Great  Britain  who  are  entirely  dependent  on  the 
wages  of  hired  labor  is  unquestionably  much  too  great ;  the 
proportion  of  this  class  to  the  whole  people  is  probably  five 
times  as  large  as  in  any  country  in  Continental  Europe.  Di- 
minish then:  number,  then,  by  all  means.  But  how?  The 
Malthusian  economists  assume  that  the  only  mode  of  effecting 
this  end  is  to  check  the  natural  growth  of  the  whole  popula- 
tion, to  lessen  the  yearly  average  of  marriages  and  births.  But 
would  it  not  be  equally  effectual,  and  more  practicable,  to  re- 


WAGES.  195 

emit  from  them  the  classes  which  are  strikingly  deficient  in 
numbers,  and  thus  restore  the  proper  balance  of  society  ?  It 
is  certainly  an  anomaly  and  an  evil,  that  more  than  half  of  the 
people  of  Great  Britain  should  be  hired  laborers,  who  have 
neither  capital  nor  land  ;  but  it  is  equally  anomalous  and  inju- 
rious to  the  welfare  of  the  whole  nation,  that  only  about 
60,000  persons  should  own  nearly  all  the  land,*  and  less  than 
300,000  possess  four  fifths  of  the  whole  property,  both  real  and 
personal.  If  the  greater  part  of  the  hired  laborers  in  England 
could  be  converted  into  peasant  proprietors,  we  should  hear  no 

*  Samuel  Laing,  Esq.,  the  distinguished  traveller,  tells  us  that  "the  class  of  land- 
ed proprietors  in  Scotland  does  not,  it  is  said,  exceed  five  or  six  thousand  individ- 
uals "  ;  and  in  Ireland,  before  the  recent  proceedings  of  the  Commission  for  the  Sale 
of  Encumbered  Estates,  The  Times  newspaper,  with  the  best  means  of  information, 
estimated  the  number  of  landholders  at  only  eight  thousand.  If  fourteen  thousand 
persons  own  all  Scotland  and  Ireland,  it  may  seem  extravagant  to  admit  that  there 
are  as  many  as  46,000  proprietors  in  England  and  "Wales.  But  this  number  in- 
cludes many  who  own  only  small  lots  of  land,  sufficient  for  a  residence  and  a  gar- 
den ;  and  also  a  few  "  statesmen,"  as  they  are  called,  in  Cumberland  county,  who 
cultivate  their  own  little  farms,  and  are  the  small  remains,  every  day  diminishing 
in  number,  of  the  ancient  "yeomanry  "  of  England.  Undoubtedly,  far  the  greater 
part  of  the  land  devoted  to  tillage  is  owned  by  a  much  smaller  number  of  persons 
than  is  here  allowed.  M.  Leonce  de  Lavergne,  who  will  not  allow  that  property  in 
England  is  so  much  concentrated  as  is  commonly  imagined,  admits  that  "a  certain 
number  "  of  proprietors,  "  at  most  2,000,  possess  among  them  one  third  of  the  land 
and  total  revenue ;  and  of  these  2,000,  there  are  50  having  princely  fortunes.  Some 
of  the  English  dukes  possess  entire  counties,  and  have  a  revenue  of  millions  of 
francs."  These  2,000  families,  he  estimates,  possess  25,000,000  acres  of  land,  and 
£20,000,000  of  income.  The  whole  number  of  acres  in  the  three  kingdoms  is 
78,000,000 ;  so  that  2,000  persons  own  nearly  one  third  of  the  land  in  the  British 
Isles. 

According  to  the  census  of  1851,  those  who  returned  themselves  as  "  landed  pro- 
prietors," for  all  Great  Britain,  were  less  than  20,000  males  and  15,000  females. 
Of  course,  some  were  owners  of  land  who  did  not  return  themselves  in  the  census 
as  such,  but  under  the  head  of  some  occupation,  as  barristers,  physicians,  officers  in 
the  army  or  navy,  &c.  On  the  other  hand,  the  rank  and  social  importance  at- 
tached to  the  ownership  of  real  estate  probably  induced  many  to  class  themselves 
among  the  "  landed  proprietors,"  though  they  did  not  own  more  than  a  house  and 
garden.  The  whole  number  of  separate  farm-holdings  in  Great  Britain,  according 
to  the  census  of  1851,  is  285,936.  If  we  allow  an  average  of  six  farms  to  an  estate, 
which  is  little  enough,  as  many  noble  proprietors  count  their  tenants  by  fifties,  we 
have  less  than  48,000  land-owners  for  all  England  and  Scotland. 

The  estimate  that  less  than  300,000  persons  own  four  fifths  of  all  the  property, 
both  real  and  personal,  is  rather  vague ;  but  as  Mr.  Farr,  the  eminent  actuary,  in 
his  evidence  before  a  committee  of  the  House  of  Commons,  computes  from  the  re- 
turns under  the  Income  Tax  that  there  are  but  236,000  persons  in  Great  Britain 
who  possess  an  income  of  £  200  or  upwards,  the  estimate  probably  errs  only  on  the 
safe  side. 


196  WAGES. 

more  complaints  about  the  lowness  of  wages,  or  the  over-pop- 
ulousness  of  the  country.  The  true  mode  of  raising  the  rate 
of  wages  is  to  alter  the  relative  numbers  of  employers  and  em- 
ployed, not  to  diminish  the  total  population. 

According  to  the  English  theory,  however,  there  are  certain 
limits  to  the  extent  to  which  wages  may  be  reduced.  "  The 
cost  of  producing  labor,"  says  McCulloch,  "like  that  of  every- 
thing else,  must  be  paid  by  the  purchasers.  The  race  of  labor- 
ers would  become  extinct,  were  they  not  supplied  with  the  food 
and  other  articles  sufficient,  at  least,  for  their  support  and  that 
of  their  families.  This  is  the  lowest  limit  to  which  the  rate  of 
wages  can  be  permanently  reduced ;  and  for  this  reason,  it  has 
been  called  the  natural  or  necessary  rate  of  wages.  The  mar- 
ket, or  actual,  rate  of  wages  may  sink  to  the  level  of  this  rate, 
but  it  is  impossible  it  should  continue  below  it.  It  is  not  on 
the  quantity  of  money  received  by  the  laborer,  but  on  the 
quantity  of  food  and  other  articles  which  that  money  will  buy, 
that  his  ability  to  maintain  himself,  and  rear  children,  must  de- 
pend. Hence  the  natural  or  necessary  rate  of  wages  is  deter- 
mined by  the  cost  of  the  food,  clothes,  fuel,  &c.  required  for 
the  use  and  accommodation  of  laborers.  And  though  a  rise 
in  the  market  or  current  rate  of  wages  be  seldom  exactly  coin- 
cident with  a  rise  in  the  price  of  necessaries,  they  can  never, 
except  when  the  market  rate  of  wages  greatly  exceeds  the  nat- 
ural or  necessary  rate,  be  far  separated.  However  high  its 
price,  the  laborers  must  always  receive  a  supply  of  produce 
adequate  for  their  support ;  if  they  did  not  obtain  thus  much, 
they  would  be  destitute ;  and  disease  and  death  would  con- 
tinue to  thin  the  population,  until  the  reduced  numbers  bore 
such  a  proportion  to  the  national  capital  as  enabled  them  to 
obtain  the  means  of  subsistence." 

The  standard  of  natural  wages,  however,  does  not  always 
mean  the  smallest  amount  of  food  and  other  necessaries  that 
is  absolutely  requisite  to  preserve  the  lives  of  a  laborer's  fam- 
ily. As  we  have  seen,  what  are  accounted  necessaries  in  one 
country,  may  be  esteemed  in  another  the  decencies,  and,  in  a 
third,  the  luxuries,  of  life.  In  England,  the  custom  of  the  coun- 
try requires  that  the  laborer  should  have  beer ;  his  family,  tea ; 
and  all  must  have  daily  provision  of  bread,  and  occasionally 
taste  meat.  Only  in  Ireland,  before  the  recent  exodus,  was  the 


WAGES.  197 

standard  of  natural  wages  generally  reduced  to  the  cost  of  the 
absolute  necessaries  of  existence,  to  a  few  potatoes  and  a  little 
buttermilk,  the  scantiest  provision  of  the  coarsest  and  cheapest 
food  that  would  support  life.  In  such  case,  of  course,  no  re- 
trenchment is  possible ;  and  whenever  a  partial  failure  of  the 
crops,  as  in  1847,  or  any  other  adverse  circumstance,  produces 
the  slightest  enhancement  of  the  price  of  these  necessaries,  the 
laborer  must  starve,  if  public  munificence  does  not  come  to  his 
relief.  But  in  England,  if  wages  are  temporarily  reduced,  or 
if  food  for  a  short  time  be  of  higher  cost,  the  working  classes 
can  dispense  with  meat,  beer,  and  tea,  and  still  subsist.  But 
the  standard  of  living  being  established  by  long  custom,  the 
laborers  will  not  submit,  or  need  not  submit,  to  such  a  reduc- 
tion of  their  comforts  as  a  permanent  arrangement,  but  will 
rather  throw  themselves,  or  their  families,  upon  the  poor  laws 
for  support. 

Hence  the  importance  which  is  attributed  by  the  Malthusian 
Economists  to  the  preservation  of  as  high  a  standard  of  living 
as  possible  for  the  laboring  classes.  Those  who  work  for  hire, 
they  argue,  are  themselves  to  blame,  if,  in  their  eagerness  to 
burden  themselves  with  families,  they  submit  to  lower  wages 
and  a  poorer  style  of  living  than  that  established  by  their  fore- 
fathers ;  they  must  blame  themselves  if  they  do  not  even  take 
advantage  of  a  temporary  increase  in  the  demand  for  labor,  or 
a  temporary  reduction  in  the  price  of  food,  to  improve  their 
condition  permanently,  by  refusing  to  go  back  to  the  low 
wages  and  diminished  comforts  of  their  former  life.  "  Unfor- 
tunately," says  Mr.  J.  S.  Mill,  "  this  salutary  effect  is  by  no 
means  to  be  counted  upon ;  it  is  a  much  more  difficult  thing 
to  raise,  than  to  lower,  the  scale  of  living  which  the  laborers 
will  consider  as  more  indispensable  than  marrying  and  having 
a  family.  If  they  content  themselves  with  enjoying  the  greater 
comfort  while  it  lasts,  but  do  not  learn  to  require  it,  they  will 
people  down  to  their  old  scale  of  living.  If,  from  poverty, 
their  children  had  previously  been  insufficiently  fed  or  im- 
properly nursed,  a  greater  number  will  now  be  reared,  and  the 
competition  of  these,  when  they  grow  up,  will  depress  wages, 
probably  in  full  proportion  to  the  greater  cheapness  of  food. 
If  the  effect  is  not  produced  in  this  mode,  it  will  be  produced 
by  earlier  and  more  numerous  marriages,  or  by  an  increased 
17* 


198  WAGES. 

number  of  births  to  a  marriage.  According  to  all  experience, 
a  great  increase  invariably  takes  place  in  the  number  of  mar- 
riages, in  seasons  of  cheap  food  and  full  employment." 

It  is  in  this  way  that  the  Malthusians  justify  the  uniform 
despondency  of  their  views,  and  refuse  to  believe  that  the  abo- 
lition of  the  corn-laws,  emigration,  a  widely  spread  epidemic, 
a  destructive  war,  or  any  other  cause  of  cheapened  food  or 
lessening  for  a  time  the  number  of  competitors  for  hire,  can 
effect  any  permanent  improvement  in  the  condition  of  the 
working  classes.  Instead  of  profiting  by  the  occasion  to  raise 
their  standard  of  living,  the  laborers  only  use  it  as  a  means  of 
rearing  more  children,  whose  competition  must  eventually 
bring  back  wages  to  their  former  proportion  to  the  price  of 
food.  The  fact  is  overlooked,  that  it  is  the  present  hopeless- 
ness of  their  condition,  the  impossibility  of  rising  above  their 
present  rank  in  life,  or  even,  as  they  are  already  at  the  bottom 
of  the  scale,  of  falling  below  it,  which  renders  the  laboring 
poor  reckless  and  improvident  in  respect  to  marriages,  and 
which  makes  them  consider  children  as  no  encumbrance,  and 
relief  in  the  poor-house  as  no  degradation.  Under  a  different 
constitution  of  society,  which  should  give  the  bulk  of  the  peo- 
ple a  right  of  ownership  in  the  soil,  such  as  the  corresponding 
classes  generally  possess  upon  the  Continent,  and  'should  break 
down  the  now  impassable  barriers  between  the  different  classes 
in  the  community,  leaving  the  avenues  to  wealth  and  honor  as 
open  as  they  are  in  the  United  States,  they  would  become 
more  provident  and  hopeful,  or  a  large  family  would  no  longer 
be  esteemed  a  burden. 

Certainly,  no  one,  under  present  circumstances,  would  ad- 
vise either  an  English  or  an  Irish  laborer,  who  is  entirely  de- 
pendent on  wages,  to  diminish  his  chance  of  keeping  out  of 
the  workhouse  by  taking  upon  himself  the  support  of  a  wife 
and  children.  What  would  be  imprudence  for  an  individual, 
would  be  imprudence  also  in  the  whole  class  or  body  of  men 
to  which  he  belongs,  or  whose  position  in  life  resembles  his 
own.  The  English  Economists  do  right,  then,  at  the  present 
time,  in  dissuading  the  laboring  poor  from  marriage.  But  we 
do  not  hereby  acknowledge  that  the  actual  wretchedness  of 
this  class  is  the  consequence  of  their  having  already  multiplied 
up  to  the  farthest  limit  at  which  the  earth  will  supply  them 


WAGES.  199 

with  food.  Much  less  do  we  accept  the  doctrine  which  tends 
to  make  the  wealthier  classes  in  Great  Britain  hard-hearted 
and  indifferent  at  the  sight  of  the  sufferings  of  the  poor,  by 
teaching  that  their  misery  is  their  own  fault,  the  inevitable  re- 
sult of  their  own  perversity  and  improvidence  in  keeping  up 
their  numbers  too  high.  On  the  contrary,  the  very  fact,  that  it 
is  now  imprudent  for  them  to  marry,  is  what  they  have  most 
right  to  complain  of,  since  it  is  not  their  own  fault,  but  that  of 
the  laws  and  the  aristocratic  institutions  of  their  country.  If 
the  policy  of  the  English  law,  for  the  last  half-century,  had  fa- 
vored the  distribution  of  fortunes  as  directly  as  it  has  actually 
encouraged  their  aggregation,  or  if  it  had  been  only  neutral  in 
this  respect,  as  it  is  in  this  country,  and  had  allowed  property 
to  take  its  natural  course  of  an  equal  division  among  all  the 
children  when  the  parent  had  expressed  no  wish  to  the  con- 
trary, the  laboring  classes  of  England,  like  the  peasantry  of 
France  and  Switzerland,  and  the  inhabitants  of  our  own  land, 
might  now  be  free  to  follow  their  own  inclinations  without  in- 
curring the  charge  of  imprudence.  Their  right  to  do  so  would 
be  established  by  a  fact  of  the  first  importance  in  the  eyes 
of  a  Malthusian ;  they  would  not  have  become  as  numerous 
as  they  now  are.  The  population  of  France,  under  the  law 
which  compels  an  equal  division  of  the  parent's  estate  among 
his  children,  increases  at  the  rate  of  only  five  per  cent  in  ten 
years,  while  the  rate  for  England  is  about  thrice  as  great. 
Yet  no  one  supposes  that  the  Englishman  is  naturally  more 
careless  and  improvident,  or  more  inclined  to  excess,  than  his 
neighbor  across  the  Channel. 

In  England,  an  increase  of  the  population  is,  pro  tanto,  an 
addition  to  the  number  of  laborers  seeking  employment,  an  in- 
crease of  the  supply  in  the  labor-market,  and  therefore  a  cause 
of  the  depression  of  wages.  In  America  it  is  not  so.  The 
facilities  for  collecting  a  little  capital  are  so  numerous,  and  the 
expenses  of  living  among  a  rural  population,  especially  in  the 
Western  States,  are  so  moderate,  that  the  class  of  persons  who 
are  dependent  exclusively  upon  wages,  and  who  form  the  bulk 
of  the  community  in  many  European  countries,  is  here  very 
small.  The  bulk  of  our  people,  at  least  of  those  who  are  na- 
tive-born, may  be  said  to  belong  to  the  class  of  independent 
laborers  or  small  capitalists.  Either  by  inheritance,  or  the 


200  WAGES. 

assistance  of  friends,  or  the  facility  of  obtaining  credit,  or 
by  savings  made  from  wages  earned  during  his  minority, 
almost  every  native  American  may  be  said  to  have  the  option 
of  "  beginning  life,"  as  it  is  called,  with  a  little  capital.  But 
because  this  capital  is  small  in  amount,  the  possessor  of  it  is 
willing,  if  wages  are  high,  to  work  for  others  for  a  time,  either 
as  a  journeyman,  a  farm-laborer,  a  clerk,  or  in  some  other  ca- 
pacity, in  order  to  increase  his  little  store  by  additional  savings 
from  wages,  before  he  commences  business  on  his  own  ac- 
count. To  be  in  the  receipt  of  wages  is  not  in  America,  as  it 
generally  is  in  Europe,  to  be  entirely  dependent  upon  wages. 
The  person  employed  not  unfrequently  lends  capital  to  his  em- 
ployer, and  is  thus  placed  upon  an  equality  with  him,  and 
saves  his  self-respect,  though  he  is  "  working  for  hire."  One 
who  either  owns,  or  has  the  power  of  purchasing,  a  small  farm, 
will  yet  "  hire  himself  out,"  as  the  phrase  is,  for  a  season  or 
two,  in  order  to  obtain  the  means  of  stocking  his  land,  or  oth- 
erwise facilitating  his  future  enterprise. 

Should  wages  be  low,  however,  persons  of  small  means  see 
little  advantage  in  postponing  their  introduction  to  business, 
and  are  tempted  to  employ  their  own  capital  at  once  in  some 
independent  occupation.  There  are  innumerable  openings  for 
private  adventure,  which  require  only  an  adventurous  spirit 
and  a  very  moderate  amount  of  capital  or  credit.  The  step 
between  the  situations  of  a  journeyman  and  a  master-mechan- 
ic, a  clerk  and  a  small  tradesman,  a  farm-laborer  and  a  small 
farmer,  is  a  short  one  and  very  easily  taken.  If  nothing  better 
can  be  done,  there  is  always  the  resource  of  removing  to  the 
West,  and  becoming  a  pioneer  in  the  settlement  of  govern- 
ment land,  which  is  first  obtained  with  a  squatter's  preemption 
right,  and  paid  for  out  of  the  proceeds  of  subsequent  harvests, 
or  out  of  the  enhanced  value  of  the  land  when  the  neighbor- 
hood begins  to  be  peopled.  The  tide  of  emigration  westward 
always  becomes  fuller  and  stronger  in  periods  of  commercial 
depression,  the  stoppage  of  manufactories,  the  low  prices  of 
agricultural  products,  and  the  consequent  reduction  of  the 
rates  of  wages.  A  check  is  thus  immediately  applied  to  the 
fall  of  wages,  which  do  not  sink  as  low  as  might  be  expected 
from  the  general  depreciation  of  property  and  diminution  of  the 
rate  of  profit.  If  wages  should  be  considerably  lessened,  few 


WAGES.  201 

operatives  for  hire  could  be  had,  except  those  of  foreign  origin. 
Many  have  a  home  in  the  rural  districts,  to  which  they  can  re- 
tire in  such  an  emergency,  and  wait  for  a  return  of  the  prosper- 
ous times  which  first  tempted  them  to  leave  the  paternal  roof, 
and  commence  work  for  high  wages  in  a  manufacturing  town. 

Again,  hired  laborers  easily  become  small  tradesmen  or 
master-mechanics,  because  the  business  of  the  manufacturer, 
the  merchant,  and  the  artisan  is  here  not  so  much  concen- 
trated in  the  hands  of  a  few  persons  with  large  capitals  as  it 
is  in  England.  The  competition  of  many,  each  having  but  a 
small  stock  in  tools  or  trade,  is  not  so  easily  crushed  out  by 
the  monster  undertakings  of  large  houses  wielding  an  im- 
mense capital,  who  can  outlive  the  reverses  of  trade  or  the 
periods  of  depression  in  the  market  that  are  usually  fatal  to 
persons  of  smaller  means.  Reverses  happen  and  failures 
ensue,  oftener  even  than  in  England,  and  to  the  large  and 
small  capitalists  alike ;  but,  as  already  mentioned,  there  are 
great  facilities  here  for  bankrupts  to  recover  their  position 
and  try  again.  Profits  and  losses  are  great,  speculation  is  rife, 
and  great  fortunes  are  acquired  and  dissipated  with  marvel- 
lous rapidity.  Hence  there  is  great  instability,  but  also  much 
life  and  enterprise,  in  trade,  and  in  all  departments  of  industry. 
I  have  already  explained  some  of  the  causes  of  the  peculiar 
mobility  of  society,  the  ease  and  frequency  of  the  inter- 
change of  social  position,  which  is  one  of  the  characteristic 
features  of  American  life,  and  a  necessary  result  of  our  polit- 
ical and  social  institutions.  The  particular  consequence  of  it, 
to  which  I  wish  here  to  direct  attention,  is,  that  it  keeps  down 
the  number  of  laborers  for  hire,  in  spite  of  the  rapid  increase 
of  the  population,  and  keeps  up  the  rate  of  wages,  or  at  least 
prevents  it  from  falling  so  rapidly  as  it  would  otherwise  do. 

Here,  also,  is  the  explanation  of  the  restless,  migratory  spirit, 
and  the  want  of  local  attachments,  which  have  so  often  at- 
tracted the  attention  of  foreign  observers.  Of  the  population 
of  three  of  our  Western  States,  Michigan,  Iowa,  and  Wiscon- 
sin, amounting  in  the  aggregate  to  nearly  one  million,  accord- 
ing to  the  census  of  1850,  only  25  per  cent  were  born  within 
the  limits  of  these  States  in  which  they  are  domiciliated, 
about  20  per  cent  were  born  in  foreign  countries,  and  over  51 
per  cent  had  their  nativity  in  other  States,  though  still  within 


202  WAGES. 

the  limits  of  the  Union ;  of  about  4  per  cent,  the  places  of  par- 
entage were  unknown.  In  European  countries,  the  bulk  of 
the  population  work  for  hire,  and  are  too  poor  to  be  able  to 
change  their  locality;  they  lack  rather  the  ability  than  the 
disposition  to  emigrate.  But  both  in  Europe  and  America, 
the  rule  holds,  that,  in  general,  only  the  poorer  people,  the 
laborers  for  wages,  are  inclined  to  seek  a  new  home.  If, 
therefore,  within  twenty  years,  about  half  a  million  of  our 
people  have  migrated  into  these  three  States,  it  is  a  proof  that 
the  laboring  class  here  generally  have  the  pecuniary  means  for 
such  migration,  or,  in  other  words,  they  have  a  small  capital, 
which,  if  they  saw  fit,  (and  many  of  them  actually  adopt  such  a 
course,)  they  might  employ  in  establishing  themselves  in  busi- 
ness on  their  own  account,  in  the  places  of  their  nativity,  and 
thus  ceasing  to  work  for  wages.  Taking  the  whole  population 
of  the  United  States  together,  according  to  the  same  census, 
it  appears  that  about  4,175,000  native-born  white  Americans, 
or  over  21  per  cent  of  the  whole  number,  are  now  resident  in 
other  States  than  those  in  which  they  had  their  nativity. 

The  doctrines  of  the  English  Political  Economists  respect- 
ing wages,  that  any  increase  of  the  laboring  population  is 
necessarily  an  evil,  as  it  increases  the  demand  for  the  means 
of  subsistence  without  proportionally  increasing  the  supply  of 
those  means,  and  as  it  increases  the  competition  in  the  labor 
market,  thereby  depressing  the  rate  of  wages  ;  that  the  natural 
or  necessary  rate  of  wages  is  the  smallest  sum  that  will  pur- 
chase those  articles  for  a  family  which,  according  to  the  cus- 
tom of  the  country,  are  regarded  as  requisite  for  the  necessaries 
and  decencies  of  life,  or,  in  other  words,  that  the  only  limit  to 
the  depression  of  wages  is  this  conventional  standard  of  what 
is  absolutely  requisite  for  the  maintenance  even  of  the  poorest 
family,  —  these  doctrines,  I  say,  cease  to  be  applicable,  or  to 
have  even  the  appearance  of  truth,  here  in  the  United  States. 
Our  natural  standard  of  wages  is,  not  the  smallest  sum  which 
will  enable  the  temperate  and  industrious  native-born  laborer 
to  support  a  family  with  decency,  but  the  smallest  that  will 
enable  him  to  do  not  only  thus  much,  but  to  amass  capital,  — 
that  will  induce  him  to  forego  the  independence  and  the  other 
advantages  of  trading  or  working  for  himself.  A  true  regard 
for  the  interests  of  the  class  to  which  he  belongs  would  lead 


WAGES.  203 

us  to  seek  rather  to  Iqwer,  than  to  elevate,  his  idea  of  what  is 
necessary  for  this  end.  The  love  of  independence,  the  thirst 
for  adventure,  the  hope  of  drawing  one  of  those  glittering 
prizes  that  often  reward  a  daring  spirit,  though  accompanied 
with  a  vast  proportion  of  blanks,  tempt  far  too  many  to  aban- 
don the  safe  course  of  slowly  collecting  a  moderate  property 
by  savings  from  wages.  Many  a  bankrupt  farmer,  tradesman, 
or  master-mechanic  might  have  safely  earned  independence  by 
continuing  to  work  for  hire. 

The  progress  of  the  population,  unparalleled  as  it  has  been 
for  rapidity,  has  been  far  from  producing  here  what  the  Eng- 
lish Economists  regard  as  its  necessary  result,  —  the  depression 
of  wages.  The  real  value  of  wages,  or  the  quantity  of  the  ne- 
cessaries of  life  which  they  will  purchase,  may  be  rather  said 
to  have  steadily  increased  in  this  country  ever  since  the  begin- 
ning of  the  present  century,  when  our  population  was  less  than 
one  fourth  of  its  present  amount.  Neither  can  the  phenome- 
non be  wholly  explained  by  the  recent  date  of  our  settlements, 
nor  by  the  extent  of  fertile,  unoccupied  land  in  our  Western 
territory.  It  is  only  by  comparison  that  the  States  on  our  At- 
lantic border,  in  which  this  phenomenon  of  high  wages  is 
exhibited,  can  be  called  recent  settlements.  Most  of  them  are 
already  over  two  hundred  years  old,  and  have  long  since  passed 
beyond  the  stages  of  colonial  infancy  and  childhood.  True, 
the  drain  that  is  caused  by  the  constant  migration  westward 
tends  to  explain  the  effect ;  but  the  question  remains,  why  a 
similar  result  is  not  produced  even  in  England ;  for,  as  I  have 
already  remarked,  the  way  from  Massachusetts  to  Iowa,  Kan- 
zas,  and  Minnesota,  is  nearly  as  long,  and  quite  as  expensive, 
as  from  Dublin  and  Liverpool  to  Nova  Scotia  and  Canada.  I 
attribute  the  result,  therefore,  to  moral  rather  than  to  physical 
causes,  —  to  American  institutions,  more  than  to  the  fact  that 
America  is  still  a  new  country,  and  is  rich  in  fertile  and  yet 
unoccupied  land.  The  mobility  of  society,  the  wider  distribu- 
tion of  property,  the  absence  of  castes,  la  carriere  ouverte  aux 
talens,  and  other  peculiarities  created  and  fostered  by  our  laws, 
are  alone  sufficient  to  account  for  the  phenomenon. 

The  only  two  causes  which  strongly  tend  to  a  depreciation 
of  wages  in  this  country  are  the  vast  and  constantly  increas- 
ing immigration  of  foreigners,  and  the  discouragement  of  our 


204  WAGES. 

manufactures  through  the  want  of  a  protective  tariff.  These 
two  causes,  in  a  great  degree,  work  together,  and  their  combined 
action  may  soon  produce  as  lamentable  an  effect  upon  wages 
in  the  United  States,  as  other  agencies  have  caused  in  Great 
Britain  and  Ireland.  At  present,  our  institutions  are  pre- 
served, and  general  content  exists  among  the  people,  because 
no  class  in  the  community  finds  itself  doomed  to  irretrievable 
penury,  and  not  one  individual  is  without  the  well-grounded 
hope  of  improving  his  condition,  and  perhaps  of  rising  even  to 
high  rank  in  the  social  scale.  But  let  the  rate  of  wages  here 
be  reduced  to  what  the  English  Economists  regard  as  their 
natural  and  necessary  standard,  —  that  is,  to  a  bare  sufficiency 
for  subsistence  from  day  to  day, —  and  the  class  of  laborers, 
who  must  always  form  the  majority  in  any  community,  and 
who,  with  us,  also  have  the  control  in  politics,  will  not  be  sat- 
isfied without  organic  changes  in  the  laws,  which  will  endan- 
ger at  once  our  political  and  social  system.  Our  immunity 
thus  far  ought  not  to  betray  us  into  a  blind  confidence  for  the 
future.  A  few  years  have  produced  a  marvellous  alteration  in 
our  prospects,  and  the  change  has  not  been  altogether  for  our 
advantage.  The  Atlantic  has  been  bridged  by  steam,  and  the 
ties  which  connect  us  with  Great  Britain,  and  link  our  com- 
mercial and  social  well-being  with  hers,  are  strengthening  every 
day.  Ireland  is  depopulating  itself  upon  our  shores ;  and  al- 
ready the  rate  of  increase  from  abroad  is  two  thirds  as  great 
as  that  of  the  natural  growth  of  the  population  at  home.  Dur- 
ing the  year  1854,  the  number  of  immigrant  foreigners  brought 
by  sea  to  our  shores  was  427,833 ;  the  average  for  the  last  four 
years  exceeded  400,000  annually.  The  annual  average  for  the 
three  years  ending  December  31,  1845,  was  but  121,000,  or 
considerably  less  than  one  third  of  the  present  average.  In 
one  particular,  this  result  is  inevitable ;  we  might  as  well  try 
to  dam  up  the  Mississippi  with  bulrushes,  as  to  stop  this  great 
westward  migration  of  the  nations.  But  we  may  enlarge  the 
field  of  employment,  and  increase  the  number  of  the  applica- 
tions of  industry,  so  that  this  immense  influx  shall  not  produce 
its  full  effect  in  depressing  the  price  of  labor.* 


*  The  number  of  passengers  arriving  in  the  United  States  by  sea  from  foreign 
countries,  from  September  30,  1843,  to  December  31,  1854,  was  as  follows:  — 


WAGES.  205 

The  tide  of  emigration  was  first  turned  with  overwhelming 
force  upon  our  shores  in  1847,  a  year  of  famine  in  Ireland  and 
Scotland,  and  of  great  distress  in  several  other  parts  of  Europe. 
The  census  taken  by  the  English  government  in  1851  not 
only  affords  evidence  of  the  extent  of  the  calamity  then  en- 
dured, but  has  brought  to  light  another  startling  fact,  which  is 
without  a  parallel  in  the  history  of  the  world ;  —  a  great  and 
fertile  country,  inhabited  by  a  civilized  people,  enjoying  a  mild 
and  equitable  government,  and  yet,  without  the  agency  of 
war,  pestilence,  or  any  sudden  paralysis  of  its  industry  from 
external  causes,  actually  becoming  depopulated  by  famine  and 
emigration. 

The  population  of  Ireland  in  1841  was  8,175,124.  Assum- 
ing that  the  natural  rate  of  increase  of  the  Irish  people  for  ten 
years  is  twelve  per  cent,  which  is  the  estimate  of  the  Census 
Commissioners  for  1841,  it  follows  that  the  number  in  1851, 
if  it  had  not  been  diminished  by  the  two  causes  just  men- 
tioned, would  have  been  9,156,139.  But  the  actual  popula- 
tion of  Ireland  in  1851  was  6,515,794 ;  that  is,  1,659,330  less 


From 

To 

Males. 

Females. 

Sex  not  stated. 

Total. 

Sept.  30, 

1843, 

Sept  30,  1844, 

48,897 

35,867 

84,764 

" 

1844, 

"    1845, 

69,188 

49,290 

1,406 

119,884 

" 

1845, 

"    1846, 

90,973 

66,778 

897 

158,648 

" 

1846, 

"    1847, 

134,750 

96,747 

1,057 

232,554 

" 

1847, 

"    1848, 

136,128 

92,883 

472 

229,483 

" 

1848, 

«'    1849, 

179,253 

119,915 

442 

299,610 

« 

1849, 

"    1850, 

200,903 

113,392 

1,038 

315,333 

« 

1850, 

Dec.  31,  1850, 

38,282 

27,107 

181 

65,570 

Dec.  31, 

1850, 

"    1851, 

245,017 

163,745 

66 

408,828 

" 

1851, 

"    1852, 

398,470 

398,470 

« 

1852, 

"    1853, 

236,596 

164,181 

400,777 

" 

1853, 

"    1854, 

284,887 

175,587 

460,474 

1,666,874      1,110,492         404,029        3,174,395 

From  the  number1  of  arrivals  here  given  for  1854,  we  should  deduct  32,641,  as  the 
number  of  citizens  of  the  United  States  returning  home,  leaving  427,833  immigrant 
foreigners,  as  stated  in  the  text.  A  corresponding  reduction  should  be  made  for  the 
other  years ;  but,  on  the  other  hand,  this  table  includes  only  the  number  of  arrivals 
by  sea,  and  takes  no  account  of  those  who  came  into  the  country  over  our  inland 
frontier,  from  Canada  and  elsewhere.  The  number  of  foreigners  entering  the  Unit- 
ed States  by  land  would  be  more  than  an  offset  for  the  number  of  Americans  in- 
cluded in  the  preceding  table  among  the  arrivals  by  sea. 

Of  those  who  arrived  in  1854,  about  215,000  are  reported  as  coming  from  Ger- 
many, 101,606  from  Ireland,  over  58,000  from  Great  Britain,  and  13,317  from 
France.  In  former  years,  the  proportion  of  Irish  immigrants  was  much  greater. 

18 


than  it  was  ten  years  before,  and  considerably  over  two  and  a 
half  millions  less  than  what  it  should  have  been,  if  the  natural 
law  of  increase  had  not  been  checked.* 

What  has  become  of  these  millions  of  human  beings  ?  The 
official  returns  of  the  total  emigration  from  the  United  King- 
dom for  the  ten  years  ending  in  March,  1851,  show  that  only 
1,741,476  persons  emigrated  during  this  period.  This  includes 
the  drain  from  England  and  Scotland  also ;  but  it  is  probable 
that  nearly  as  many  Irish  passed  over  into  the  sister  island  as 
would  make  up  for  the  number  of  natives  who  left  it  to  go 
abroad.  And  yet  there  remain  about  900,000  Irish  to  be  ac- 
counted for,  —  an  immense  loss  of  population,  to  be  attributed 
to  famine  and  the  diseases  consequent  upon  extreme  misery 
and  want.  And  the  drain  still  continues ;  a  panic  seems  to 
have  seized  the  population  of  Ireland,  and  they  rush  to  the 
seaports  to  embark  for  any  other  portion  of  the  earth,  as  if  the 
whole  island  labored  under  a  curse.  The  emigration  for  1849 
and  1850,  amounting  to  432,491,  is  included  in  the  numbers 
already  given.  But  in  1851,  we  learn  that  254,537  Irish  emi- 
grants left  their  native  land ;  224,997  left  in  1852,  and  199,392 
in  1853 ;  thus  making  a  total  of  678,926  persons  who  quitted 
Ireland  during  the  next  three  years  after  the  last  census  was 
taken.  The  population  of  the  island  at  the  close  of  1853, 
therefore,  cannot  have  amounted  to  six  millions.  The  total 
emigration  from  the  United  Kingdom  of  Great  Britain  and 
Ireland,  for  the  three  years  ending  in  December,  1853,  (includ- 
ing the  numbers  already  given  for  Ireland,)  amounted  to 
1,033,537,  a  number  somewhat  exceeding  the  natural  increase 
through  the  excess  of  births  over  deaths,  so  that  the  population 
of  the  kingdom  actually  declined  during  this  period. 


*  The  actual  rate  of  increase  in  Ireland  from  1831  to  1841  was  only  five  per  cent. 
But  during  this  period,  the  causes  had  already  begun  to  operate,  which,  in  the  suc- 
ceeding decade,  had  so  remarkable  an  effect  in  thinning  the  population.  In  the 
preceding  ten  years,  1821  to  1831,  the  rate  was  fourteen  per  cent,  which  is  about 
two  per  cent  lower  than  the  corresponding  rate  in  England  for  the  same  period. 
There  is  reason  to  believe  that  the  Irish  tend  to  multiply  faster  than  the  English  or 
the  Scotch  ;  that  is,  that  the  births  among  them  are  proportionally  more  numerous. 
The  Irish  Census  Commissioners  show  that  their  estimate,  which  I  have  adopted  in 
the  text,  is  a  safe  one,  by  proving  from  the  returns  that  572,464  persons  emigrated 
from  Ireland  during  the  ten  years  preceding  1841,  —  a  number  sufficient  to  raise  the 
proportion  for  that  decade  from  five  to  twelve  per  cent. 


WAGES.  207 

I  do  not  dwell  upon  these  facts  merely  because  they  afford 
a  spectacle  and  a  problem  which  may  well  claim  the  attention 
of  the  whole  civilized  world.  They  have  a  peculiar  meaning 
and  pertinency  for  us  here  in  the  United  States ;  they  must 
affect  our  future  prosperity,  whether  for  good  or  ill,  far  more 
even  than  that  of  Great  Britain.  It  is  to  our  shores,  not  to 
those  of  Great  Britain  and  Ireland,  that  this  great  Irish  exodus 
is  directed.  These  exiles  are  coming  to  us,  mostly  in  a  state 
of  great  destitution,  bringing  with  them  Irish  habits,  and  Irish 
willingness  to  live  in  squalor  upon  the  smallest  pittance  that 
will  support  life.  Already  they  constitute,  either  by  them- 
selves or  in  connection  with  the  Germans,  almost  the  whole 
class  of  our  menial  or  domestic  servants  in  the  non-slavehold- 
ing  States,  and  of  rude  laborers  in  the  construction  of  railroads 
and  other  public  improvements.  Cheapness  of  provisions  is 
not  the  attraction  that  brings  them  here  ;  at  this  moment,  aU 
the  common  articles  of  provisions  are  as  cheap  in  Ireland  as  in 
the  Atlantic  States  of  this  Union ;  many  of  them  are  cheaper. 
Nor  is  it  comparative  freedom  from  taxation  which  they  seek ; 
for  the  annual  amount  of  Irish  taxes  is  only  about  ten  shillings 
a  head,  which  hardly  exceeds  the  burden  of  government  here 
in  America.  But  they  come  in  quest  of  constant  employment 
and  higher  wages.  These  are  the  tangible  tokens  of  our  pros- 
perity, the  causes  of  the  general  well-being  of  our  people ;  and 
these  have  made  the  United  States  a  harbor  of  refuge  for  the 
poor  of  the  civilized  world.  And  we  have  proof  that  the  Irish 
have  succeeded  in  obtaining  in  America  what  they  came  to 
seek,  —  wages  which  should  suffice,  not  only  to  support  life, 
but  to  enable  them  to  effect  considerable  savings.  The  remit- 
tances which  they  are  making  to  alleviate  the  misery  of  then- 
relatives  and  friends  at  home,  or  to  enable  them  to  emigrate  to 
this  country,  have  reached  an  amount  that  hardly  seems  cred- 
ible, though  the  statistics  of  the  subject,  collected  by  the  Brit- 
ish government,  cannot  be  questioned.  It  appears  that  the 
amounts  remitted  from  America  to  Ireland  through  the  banks, 
exclusive  of  sums  sent  by  private  hands,  amounted,  in  1848, 
to  £  460,000 ;  and  that  they  steadily  increased,  till,  in  1853, 
they  reached  the  prodigious  sum  of  £  1,439,000,  or  about 
seven  millions  of  dollars.  It  is  probable  that  a  portion  of  this 
sum  is  remitted  for  investment,  a  favorable  opportunity  being 


208  WAGES. 

afforded  for  the  purchase  of  land  by  the  proceedings  of  the 
Commission  for  the  Sale  of  Irish  Encumbered  Estates.  Thus 
the  Irishman  comes  to  America  as  a  pauper,  and  in  a  few 
years  collects  the  means  of  returning,  if  he  sees  fit,  to  his  na- 
tive country  as  a  land-owner. 

Wages  depend,  as  the  English  Political  Economists  are 
fond  of  remarking,  upon  the  ratio  of  population  to  capital  and 
employment.  They  ought  to  rise,  then,  as  the  numbers  of  the 
people  diminish,  though  trade  and  manufactures  should  only, 
to  use  an  expressive  phrase,  "  hold  their  own " ;  and  they 
should  rise  still  more  rapidly,  if,  at  the  same  time,  trade  and 
manufactures  be  remarkably  prosperous,  and  capital  be  stead- 
ily increasing.  But  it  is  a  surprising  fact,  that  although  Ire- 
land has  lost  during  the  last  ten  years  over  two  millions  of  her 
people,  being  one  fourth  part  of  her  whole  population,  and 
though  there  has  been  a  considerable  influx  of  capital  into  the 
country,  owing  to  the  settlement  and  improvement  of  the  En- 
cumbered Estates,  "  very  little  improvement,  if  any,  has  oc- 
curred in  the  rate  of  wages  of  labor  in  the  districts  most 
depopulated  by  emigration."  This  is  the  language  of  the  Irish 
Poor  Law  Commissioners,  in  their  Annual  Report  made  in 
1853.  "  In  January  last,"  they  say,  "  we  obtained  returns 
from  our  Inspectors,  relating  to  nearly  the  whole  of  Ireland, 
showing  the  comparative  rate  of  wages  in  the  present  year 
and  in  several  past  years,  summaries  of  which "  are  given  in 
the  Report.  "  In  very  few  departments  of  labor  does  the 
money  rate  of  wages  appear  to  have  been  higher  in  the  be- 
ginning of  1853  than  it  was  in  1845,  the  year  before  the  com- 
mencement of  the  famine."  True,  the  condition  of  the 
peasantry  had  improved,  as  the  same  amount  of  wages  would 
purchase  a  greater  quantity  of  provisions,  as  employment  could 
be  more  constantly  obtained,  and  as  the  number  of  paupers 
was  much  smaller,  this  last  result  being  directly  attributable 
to  the  emigration.  The  fact  that  money  wages  have  not  risen, 
can  be  explained  by  the  previous  great  redundancy  of  the  la- 
boring population,  owing  to  the  narrowness  of  the  field  of 
employment  caused  by  the  almost  exclusive  devotion  of  the 
people  to  agriculture.  We  have  here  a  strong  corroboration, 
then,  of  our  previous  doctrine,  that  a  country  cannot  become 
wealthy  whose  inhabitants  are  chiefly  or  altogether  occupied 


WAGES. 


in  tilling  the  ground,  whatever  may  be  the  fertility  of  its  soil 
or  the  favorableness  of  its  situation. 

The  history  of  Ireland  shows  the  inevitable  consequences  of 
free  trade  with  a  country  having  so  vast  an  aggregate  of  capi- 
tal as  Great  Britain,  and  reaping  the  fruits  also  of  the  skill  and 
experience  acquired  during  a  strict  enforcement  of  the  protec- 
tive policy  for  two  centuries.  The  legislative  union  of  the 
two  countries,  at  the  beginning  of  the  present  century,  broke 
down  the  few  barriers  which  formerly  limited  their  intercourse, 
and  left  them  to  compete  on  what  the  English  Economists 
consider  as  equal  terms.  Till  this  epoch,  whatever  political 
evils  Ireland  may  have  endured,  her  social  state  was  not  in 
any  marked  degree  inferior  to  that  of  England.  The  habits  of 
her  people,  it  is  true,  were  not  so  neat  and  industrious ;  but 
wages  were  not  reduced  to  a  starvation  limit,  and  her  cottiers 
generally  had  enough  to  eat  and  to  spare.  But  unrestricted 
intercourse  with  England  stifled  the  small  beginnings  of  her 
manufacturing  industry ;  for  her  people  could  purchase  from 
the  sister  country  even  all  the  products  of  the  small  mechanic 
trades  and  arts  cheaper  than  they  could,  at  the  time,  manufac- 
ture them  for  themselves.  They  bought  in  the  cheapest  mar- 
ket, forgetting  that  they  had  nothing  but  the  cereal  grains, 
pigs,  potatoes,  and  butter,  to  offer  in  exchange,  and  that  the 
production  of  these  articles  would  not  afford  employment  to 
half  the  industry  of  the  people.  Manufactures  could  never 
gain  a  foothold  among  them,  save  in  the  North,  where  a  col- 
ony of  canny  Scotch  introduced  the  culture  of  flax,  made  linen, 
and  have  since  kept  themselves  out  of  the  abyss  of  poverty 
into  which  the  rest  of  the  island  has  been  plunged.  So  feeble 
were  the  means  of  the  native  Irish  for  keeping  up  trade  by  ex- 
portation, that  their  consumption  both  of  domestic  and  foreign 
goods  dwindled  almost  to  nothing.  Mr.  Martin,  one  of  the 
latest  and  ablest  statistical  writers  upon  Irish  affairs,  cannot 
suppress  his  astonishment,  that  "  the  consumption  of  British 
manufactures  in  Ireland  is  not  more  than  one  guinea  per  an- 
num for  each  inhabitant,  whereas  the  negroes  in  the  West 
Indies  consume  each  five  pounds'  worth  annually."  But  the 
reason  is  obvious  enough;  the  negroes  in  the  West  Indies 
have  sufficient  employment  for  their  industry  in  the  produc- 
tion of  sugar,  coffee,  and  pimento,  in  regard  to  which  they  are 
18* 


210  WAGES. 

not  exposed  to  Transatlantic  competition.  Having  enough  to 
sell,  they  are  consequently  able  and  willing  to  buy.  But  the 
Irish  have  nothing  to  sell  except  the  provisions  which  they 
take  from  the  mouths  of  their  children.  So  they  have  gone 
on,  constantly  exporting  a  larger  share  of  their  pigs,  potatoes, 
and  butter,  till  they  have  at  last  ceased  to  preserve  any  to  sat- 
isfy their  own  hunger.  "  The  most  remarkable  thing,"  says 
Mr.  Martin,  "  is,  that,  even  during  the  recent  famine,  there  were 
large  exports  of  provisions  from  Ireland."  While  this  famine 
was  at  its  height,  upwards  of  three  millions  of  persons  were 
fed  at  one  time  by  public  charity.*  If  these  are  the  consequen- 
ces of  free  trade  with  England,  and  exclusive  addiction  to  agri- 
cultural pursuits,  we  may  well  call  for  the  restoration  of  a 
protective  policy  here  in  the  United  States. 

But  the  danger  in  this  country  is  still  greater,  owing  to  the 
immense  influx  of  foreigners  who  are  attracted  hither  by  the 
higher  wages  of  industry,  and  whose  presence  and  competition 
with  the  native  operatives  are  likely  to  effect  a  general  and  great 
depreciation  in  the  price  of  labor.  Besides  the  natural  rapid 
growth  of  our  population,  an  annual  addition  to  our  numbers 
of  over  400,000  immigrants,  all  of  them,  except  an  insignifi- 
cant fraction,  being  of  the  poorest  class,  cannot  but  produce  a 
marked  effect  of  some  kind,  even  if  the  field  for  the  employ- 
ment of  industry  here  were  widening  under  the  most  favorable 
circumstances.  Many  of  these  exiles  are  Irish,  who  have  been 
accustomed  to  regard  six  shillings  ($1.50)  a  week  as  liberal 
wages  for  the  father  of  a  family,  even  when  they  could  get 
employment  only  for  half  of  the  time.f 


*  "  Neither  ancient  nor  modern  history  can  furnish  a  parallel  to  the  fact,  that  np- 
wards  of  three  millions  of  persons  were  fed  every  day,  in  the  neighborhood  of  their 
own  homes,  by  administrative  arrangements  emanating  from,  and  controlled  by,  one 
central  office." —  The  Irish  Crisis,  by  C.  E.  Trevelyan,  Secretary  to  the  Treasury. 

t  Seven  years  before  the  occurrence  of  the  Irish  famine,  that  wild  genius,  Mr. 
Carlyle,  beheld  the  inevitable  effect,  upon  the  wages  of  English  workmen,  of  the  in- 
flux of  the  Irish  into  England,  and  thus,  in  his  quaint  fashion,  wailed  over  it :  — 

"  Crowds  of  miserable  Irish  darken  all  our  towns.  The  wild  Milesian  features, 
looking  false  ingenuity,  restlessness,  unreason,  misery,  and  mockery,  salute  you  on 
all  highways  and  byways.  The  English  coachman,  as  he  whirls  past,  lashes  the 
Milesian  with  his  whip,  curses  him  with  his  tongue ;  the  Milesian  is  holding  out  his 
hat  to  beg.  He  is  the  sorest  evil  this  country  has  to  strive  with.  In  his  rags  and 
laughing  savagery,  he  is  there  to  undertake  all  work  that  can  be  done  by  mere 
strength  of  hand  and  back,  for  wages  that  will  purchase  him  potatoes.  He  needs 


WAGES.  211 

Though  the  number  of  Irish  who  have  crossed  over  into 
Great  Britain  probably  does  not  equal  one  fourth  of  those  who 
have  found  a  refuge  in  the  United  States,  Mr.  J.  S.  Mill,  who 
generally  opposes  the  interference  of  government  on  any  occa- 
sion, makes  this  extraordinary  admission :  —  "  If  there  were  no 
other  escape  from  that  fatal  immigration  of  the  Irish,  which 
has  done  and  is  doing  so  much  to  degrade  the  condition  of  our 
agricultural,  and  some  classes  of  our  town  population,  I  should 
see  no  injustice,  and  the  greatest  possible  expediency,  in  check- 
ing that  destructive  inroad  by  prohibitive  laws." 

But  the  field  for  the  employment  of  industry  in  the  United 
States  is  not  widening.  An  alteration  of  the  tariff  in  1846 
paralyzed  for  a  time  the  chief  branches  of  manufactures,  and 
brought  down  the  prices  of  bread-stuffs  and  other  provisions, 
for  several  years,  to  a  point  which  gave  the  farmer  no  tempta- 
tion to  raise  more  of  them  than  were  necessary  for  home  con- 
only  salt  for  condiment ;  he  lodges  to  his  mind  in  any  pig-hutch  or  dog-hutch,  roosts 
in  out-houses ;  and  wears  a  suit  of  tatters  the  getting  off  and  on  of  which  is  said  to 
be  a  difficult  operation,  transacted  only  on  festivals  and  the  high  tides  of  the  calen- 
dar. The  Saxon  man,  if  he  cannot  work  on  these  terms,  finds  no  work 

And  yet  these  poor  Celtiberian  Irish  brothers,  what  can  they  help  it  ?  They  cannot 
stay  at  home  and  starve.  It  is  just  and  natural  that  they  come  hither  as  a  curse  to 
us.  Alas !  for  them  too  it  is  not  a  luxury.  The  time  has  come  when  the  Irish  pop- 
ulation must  either  be  improved  a  little,  or  else  exterminated Every  man 

who  will  take  the  statistic  spectacles  off  his  nose,  and  look,  may  discern  in  town  and 
country,  that  the  condition  of  the  lower  multitude  of  English  laborers  approximates 
more  and  more  to  that  of  the  Irish  competing  with  them  in  all  markets ;  that  what- 
soever labor,  to  which  mere  strength  with  little  skill  will  suffice,  is  to  be  done,  will 
be  done,  not  at  the  English  price,  but  at  an  approximation  to  the  Irish  price ;  at  a 
price  superior  as  yet  to  the  Irish,  that  is,  superior  to  scarcity  of  third-rate  potatoes 
for  thirty  weeks  yearly ;  superior,  —  yet  hourly,  with  the  arrival  of  every  new  steam- 
boat, sinking  nearly  to  an  equality  with  that."  —  Chartism,  by  T.  Carlyle. 

Mr.  De  Qnincey,  in  his  "  Logic  of  Political  Economy,"  observes :  "  The  true  ruin 
of  Irish  pauperism  to  England  and  Scotland  is  not  of  a  nature  to  be  checked  by  any 
possible  Poor  Bill  This  ruin  lies,  first  and  chiefly,  in  the  gradual  degradation  of 
wages,  English  and  Scotch,  under  the  fierce  growth  of  Irish  competition ;  secondly, 
in  the  chargeableness  of  Irish  pauperism,  once  settled,  upon  funds  English  and 
Scotch.  In  Scotland,  the  case  is  even  worse  at  present  than  in  England."  At  Pais- 
ley, in  1842,  "the  sheer  impossibility  of  feeding  adequately  the  entire  body  of  claim- 
ants, coerced  the  humane  distributors  of  the  relief  into  drawing  a  line  between 
Scotch  and  Irish.  Then  it  was  that  the  total  affliction  became  known, — namely,  the 
hideous  extent  to  which  Irish  intruders  upon  Scotland  had  taken  the  bread  out  of 
her  own  children's  mouths.  As  to  England,  it  has  long  been  accepted  as  a  fair  state- 
ment, that  50,000  Irish  interlopers  annually  swell  the  great  tide  of  our  native  in- 
crease "  ;  or  about  half  as  many  as  now  annually  come  to  the  United  States,  and 
about  one  eighth  part  of  our  total  foreign  immigration. 


212  WAGES. 

sumption.  The  effect,  so  far  as  agriculture  was  concerned, 
was  suspended  in  1847,  and  partially  in  1848,  by  the  potato- 
rot  in  Ireland,  and  the  partial  failure  of  the  crops  in  England 
and  on  the  Continent,  which  caused  a  large  demand  for  Amer- 
ican articles  of  food  to  be  exported.  But  the  demand  and  the 
price  fell  off  again  in  subsequent  years.  In  1850  and  1851, 
the  average  price  of  flour  in  our  Atlantic  seaports  was  about 
five  dollars  a  barrel,  a  price  at  which  the  farmers  of  the  West 
cannot  afford  to  export  it  at  all,  except  for  the  purpose  of  re- 
lieving a  glutted  market  by  a  sacrifice.*  Meanwhile,  the  sale 
of  British  manufactures  in  this  country,  to  the  great  depression 
of  our  domestic  industry,  rapidly  increased.  Our  imports  of 
the  manufactures  of  wool,  cotton,  and  iron,  for  the  year  ending 
in  June,  1851,  had  become  forty-three  per  cent,  and  for  that 
ending  in  June,  1853,  one  hundred  and  twenty-five  per  cent, 
greater  than  they  were  the  year  before  the  alteration  of  the 
tariff.  To  pay  for  these  extravagant  importations,  we  were 
obliged  to  sell  our  agricultural  products  at  the  reduced  price 
just  mentioned,  and  to  export  an  immense  amount  of  Califor- 
nia gold  besides. 

The  effect  upon  the  demand  for  labor  in  manufacturing  op- 
erations in  the  United  States  may  be  very  briefly  illustrated. 
In  Pennsylvania,  the  number  of  blast  furnaces  for  the  produc- 
tion of  iron  from  the  ore  was  304,  capable  of  making  half  a 
million  of  tons  annually.  Within  three  years  after  the  effects 
of  the  new  tariff  began  to  be  felt,  167  of  these  furnaces,  or  56 
per  cent,  were  put  out  of  blast,  and  the  iron  made  by  the  re- 
mainder was  49  per  cent  less  than  the  quantity  previously 
manufactured.  There  were  also  200  establishments  for  the 
manufacture  of  wrought  iron,  and  they  produced  about  200,000 
tons  annually ;  within  two  years  after  the  enactment  of  the 
new  tariff,  their  product  fell  off  33  per  cent,  and  the  manufac- 
ture generally  ceased  to  yield  any  profit,  and  was  continued 
only  to  avoid  a  heavy  sacrifice  in  the  cost  of  the  machinery.! 


*  The  present  enhanced  price  (1855)  of  American  provisions  and  bread-stuffs 
does  not  affect  this  argument.  A  deficiency  of  the  crops  in  England,  the  war  with 
Kussia,  and  the  disturbing  effect  upon  the  prices  of  all  commodities  of  the  great  in- 
flux of  Californian  and  Australian  gold,  is  the  cause  of  this  enhanced  price,  which, 
to  a  considerable  degree,  is  merely  nominal. 

t  To  the  suggestion,  that  these  unfortunate  results  may  possibly  be  attributable  to 


WAGES.  213 

The  capital  invested  in  the  504  iron  works  in  Pennsylvania 
exceeded  twenty  millions  of  dollars ;  and  the  number  of  per- 
sons directly  employed  in  them,  when  all  at  work,  would  be 
30,103.  Reckoning  also  the  hands  employed  in  mining  and 
transporting  coal  and  ore  to  the  works,  and  in  transporting  the 
finished  iron  to  market,  we  have  a  grand  total  of  41,616  men 
dependent  on  the  iron  business  in  Pennsylvania  alone.  This 
State  probably  produces  half  of  all  the  iron  manufactured  in 
the  United  States ;  and  as  the  statistics  now  given  leave  no 
doubt  that  at  least  one  half  of  the  workmen  formerly  engaged 
in  making  iron  were  dismissed,  it  is  certain  that  the  new  tariff 
threw  out  of  employment  40,000  laborers  in  this  business 
alone.  Most  of  these  discharged  workmen  necessarily  became 
farmers  and  agricultural  laborers,  and,  by  their  competition, 
tended  to  reduce  the  prices,  already  ruinously  low,  of  agricul- 
tural produce. 

This  is  not  all.  Within  three  years  after  this  reduction  of 
the  tariff,  the  price  of  the  imported  iron  began  to  rise  rapidly, 
and  in  1852  and  1853,  it  was  even  higher  than  it  had  been  be- 
fore the  ruin  of  the  home  manufacture.  Then,  at  a  great  cost, 
the  old  business  was  resumed,  the  deserted  works  were  re- 
paired, the  machinery  replaced,  and  the  manufacture  was 
again  in  the  full  tide  of  activity,  but  subject  to  another  decline 
and  fall  with  the  next  fluctuation  in  the  foreign  market.  The 
injury  done  to  American  industry  arises  not  so  much  from  the 
quantity,  as  from  the  ruinous  fluctuations  in  price,  of  the  im- 
ported commodities.  What  is  needed  from  a  protective  tariff 
in  this  country  is,  to  prevent  the  foreign  article  from  being  fre- 
quently sent  hither  to  be  sold  below  its  cost,  in  order  to  relieve 
the  glutted  English  market.  The  aggregate  cost  of  iron  to 
American  consumers,  during  the  eight  years  preceding  1854, 
was  undoubtedly  greater  than  if  the  reduction  of  the  duties 
through  the  tariff  of  1846  had  never  taken  place. 

There  are  no  means  of  ascertaining  precisely  the  effect  pro- 
duced by  the  new  tariff  on  the  manufactures  of  cotton  and 

over-trading,  and  not  to  the  tariff  of  1846,  the  conclusive  answer  may  be  made,  that, 
in  the  year  when  the  production  of  Pennsylvania  iron  was  greatest,  the  country  im- 
ported over  50,000  tons  of  pig  and  bar  iron,  exclusive  of  chains,  wrought-iron,  hard- 
ware, &c.  A  manufacture  cannot  be  deemed  excessive  which  is  insufficient  to 
supply  the  home  market. 


214  WAGES. 

wool.  According  to  the  census  of  1850,  these  manufactures 
then  gave  employment  to  upwards  of  55,000  male  operatives, 
and  to  over  75,000  females,  a  number  probably  not  so  great 
by  50  per  cent  as  it  would  have  been,  but  for  the  reduction  of 
duties  in  1846.  The  vicissitudes  to  which  these  manufacturers 
have  been  exposed,  have  not  been  destructive  to  many  works 
already  in  existence  ;  but  there  has  been  no  such  development 
or  extension  of  them  as  the  interests  of  the  country  required. 
It  is  not  enough  for  the  peculiar  situation  in  which  the  people 
of  this  country  are  now  placed,  that  the  great  departments  of 
industry  should  be  able  merely  to  sustain  themselves,  by  a 
great  effort,  at  the  point  which  they  had  reached  ten  years  ago. 
They  must  be  developed  and  multiplied  at  a  rate  proportioned 
at  least  to  the  rapid  growth  of  our  population  both  from  native 
and  foreign  sources.  Otherwise,  the  profits  of  capital  and  the 
wages  of  labor  must  sink  to  the  level  at  which  they  have  long 
rested  in  Great  Britain.  The  inevitable  consequence  of  free 
trade  and  constantly  increasing  commercial  intercourse  be- 
tween the  two  countries  must  be,  to  establish  among  the 
inhabitants  of  both  of  them  the  same  standard  of  material 
well-being,  the  same  measure  and  distribution  of  individual 
prosperity.  Great  Britain  is  now  pouring  upon  us  in  a  full 
tide  both  the  surplus  of  her  population  and  the  products  of  her 
overtasked  manufacturing  industry.  She  is  giving  us  more 
mouths  to  feed,  at  the  moment  when  she  is  taking  away  from 
us  the  means  of  feeding  them  in  any  other  way  than  by  for- 
cing them  into  agricultural  industry,  and  thus  cheapening  still 
farther  the  agricultural  products  which  alone  she  can  receive 
from  us  in  exchange.  The  ocean,  which  once  separated  us, 
steam  has  contracted  to  a  span.  For  all  purposes  of  free  in- 
tercourse, we  are  now  virtually  two  contiguous  countries,  sep- 
arated by  no  mountain  barriers,  by  no  differences  of  race, 
language,  or  polity,  by  no  fundamental  dissimilarity  of  our 
political  institutions,  and  governed  by  the  same  system  of 
municipal  law.  We  are  rapidly  becoming  as  much  one  peo- 
ple as  the  English  and  the  Irish,  or  the  English  and  the 
Scotch.  To  expect  that,  in  two  countries  thus  situated,  with- 
out any  special  direction  of  public  policy  towards  maintaining 
some  barrier  between  them,  the  pressure  of  population,  the 
profits  of  capital,  and  the  wages  of  labor  can  long  remain  very 


DIFFERENCES    OF    WAGES.  215 

unequal,  would  be  as  idle  as  to  believe  that,  without  the  erec- 
tion of  a  dam,  water  could  be  maintained  at  two  different 
levels  in  the  same  pond.  Throw  down  the  little  that  remains 
of  our  protective  system,  and  let  the  emigration  from  Great 
Britain  and  Ireland  to  our  shores  increase  to  half  a  million  an- 
nually, and  within  the  lifetime  of  the  present  generation,  the 
laborer's  hire  in  our  Atlantic  States  will  be  as  low  as  it  is  in 
England.  Our  manufactures  would  flourish  then,  as  those  of 
Great  Britain  flourish  now ;  cheap  labor  is  the  only  requisite 
for  placing  them  upon  the  same  level.  It  is  not,  then,  for  the 
sake  of  the  capital  now  embarked  in  our  manufacturing  enter- 
prises, that  we  would  advocate  a  return  to  what  has  been  well 
denominated  "  the  American  policy."  But  that  the  bulk  of 
our  laboring  population  should  fall  into  that  condition  where 
they  would  be  exposed  to  such  evils  as  have  visited  the  labor- 
ing classes  of  Great  Britain  and  Ireland  during  the  last  ten 
years,  —  that  the  necessary  standard  of  wages,  as  the  English 
economists  call  it,  should  be  here,  as  well  as  there,  the  smallest 
sum  which  will  give  a  mere  subsistence,  —  this  we  should  re- 
gard as  the  greatest  calamity  which  the  folly  of  men  or  the 
wrath  of  Heaven  could  bring  upon  the  land. 


CHAPTER     XV. 

THE    CAUSES    OF   DIFFERENT    RATES    OF    WAGES    IN   DIFFERENT 
EMPLOYMENTS. 

THE  effect  of  competition  upon  the  rates  of  wages  in  differ- 
ent employments  has  been  admirably  illustrated  by  Adam 
Smith.  It  is  matter  of  common  observation,  that  the  work- 
men in  different  arts  and  trades  are  paid  very  unequally,  if 
their  wages  be  reckoned  only  in  money.  A  blacksmith  usu- 
ally earns  more  than  a  farm-laborer;  a  watchmaker  more 
than  a  blacksmith;  a  lawyer  or  a  physician  —  for  these  also 
are  laborers  for  hire  —  more  than  a  watch-maker.  How  can 
such  inequalities  exist,  when  competition,  the  great  equalizing 


216  DIFFERENCES    OF    WAGES. 

agent,  is  always  at  work,  and  tends  always  to  bring  profits, 
wages,  and  prices  to  a  level?  Why  do  not  persons  leave 
those  employments  that  are  underpaid,  and  flock  into  those 
which  receive  more  than  the  average?  The  answer  is,  that 
laborers  are  paid  for  their  services  not  only  in  money,  but  in 
the  various  degrees  of  credit  or  estimation  in  which  their  busi- 
ness is  held,  in  the  agreeableness  or  disagreeableness  of  the 
occupation,  the  ease  or  difficulty  of  learning  it,  and  in  its  sev- 
eral other  peculiarities ;  and  that  competition  is  often  limited 
by  circumstances,  so  that  it  is  unable  to  produce  its  full  effect. 
Competition  is  free  only  when  all  persons  are  at  liberty  to 
enter  into  it ;  and  men  compete  for  employment  in  different 
occupations  according  to  their  view,  not  merely  of  the  pecu- 
niary gains  which  it  offers,  but  of  the  various  circumstances, 
among  which  the  nominal  amount  of  wages  is  only  one,  that 
render  it  more  or  less  desirable.  I  borrow  with  some  enlarge- 
ment the  illustrations  of  this  topic  by  Adam  Smith  and  other 
economists. 

First,  "  the  wages  of  labor  vary  with  the  ease  or  hardship, 
the  cleanliness  or  dirtiness,  the  honorableness  or  dishonorable- 
ness,  of  the  employment."  Thus,  the  work  of  a  stevedore, 
that  of  loading  and  unloading  vessels  at  the  wharves,  as  it  is 
more  humble,  dirty,  and  fatiguing,  is  more  highly  paid,  than 
that  of  a  shoemaker.  "  A  journeyman  blacksmith,  though  an 
artificer,  seldom  earns  so  much  in  twelve  hours  as  a  collier, 
who  is  only  a  laborer,  does  in  eight ;  his  work  is  not  quite  so 
dirty,  is  less  dangerous,  and  is  carried  on  in  daylight  and 
above  ground.  Honor  makes  a  great  part  of  the  reward  of  all 
honorable  professions."  The  profession  of  a  teacher  is  more 
respectable  than  that  of  a  dressmaker ;  and  therefore  many 
young  women,  here  in  New  England,  wall  keep  school  at  three 
dollars  a  week,  when  they  might  earn  six  dollars  in  the  same 
time  by  ministering  to  their  countrywomen's  love  of  fashion 
and  elegance  in  dress.  Occupations  which  can  be  pursued  at 
home  are  not  so  largely  remunerated  as  those  which  must  be 
carried  on  within  the  precincts  of  a  great  manufactory.  A 
farmer's  daughter,  who  has  what  is  called  "  slop-work "  sup- 
plied to  her  at  home  from  the  cheap-clothing  establishments, 
cannot  earn  one  third  as  much  as  she  would  receive  for  tend- 
ing a  loom  in  a  cotton-factory ;  but  then  she  can  choose  her 


DIFFERENCES    OF    WAGES.  217 

own  hours  for  work  or  recreation,  can  rise  early  or  late,  and  be 
free  from  any  external  control.  This  freedom  of  action  is  paid 
for  by  a  diminution  of  wages.  The  brakeman  employed  on  a 
railway  must  receive  higher  wages  than  the  laborer  employed 
in  grading  the  road,  as  his  occupation  is  a  dangerous  one  ;  he 
must  be  paid  for  the  not  improbable  event  of  breaking  a  leg  or 
an  arm,  or  losing  his  life.  The  laborers  employed  in  con- 
structing a  railroad  across  the  Isthmus  of  Panama  received 
very  high  pay ;  they  were  compelled  to  go  far  from  home  into 
a  climate  so  pestilential,  that  probably  one  half  of  their  num- 
ber perished  while  the  work  was  in  progress. 

"  Secondly,"  says  Adam  Smith,  "  the  wages  of  labor  vary 
with  the  easiness  and  cheapness,  or  the  difficulty  and  expense, 
of  learning  the  business.  When  any  expensive  machine  is 
erected,  the  extraordinary  work  to  be  performed  by  it  before  it 
is  worn  out,  it  must  be  expected,  will  replace  the  capital  laid 
out  on  it,  with  at  least  the  ordinary  profits.  A  man  educated 
at  the  expense  of  much  labor  and  time,  may  be  compared  to 
one  of  these  expensive  machines.  The  work  which  he  learns 
to  perform,  it  must  be  expected,  over  and  above  the  usual 
wages  of  common  labor,  will  replace  to  him  the  whole  ex- 
pense of  his  education,  with  at  least  the  ordinary  profits  of  an 
equally  valuable  capital.  It  must  do  this  in  a  reasonable  time, 
regard  being  had  to  the  very  uncertain  duration  of  human  life, 
in  the  same  manner  as  to  the  more  certain  duration  of  the  ma- 
chine. The  difference  between  the  wages  of  skilled  labor  and 
those  of  common  labor  is  founded  on  this  principle." 

It  should  be  added,  that  all  persons  are  not  capable  of  learn- 
ing the  more  difficult  employments,  for  which  a  quick  eye,  a 
dexterous  hand,  and  some  natural  taste  or  ingenuity,  are  often 
requisite.  Not  all  common  laborers,  after  any  expense  of  time 
and  training,  would  make  good  blacksmiths ;  nor  are  all  black- 
smiths capable  of  becoming  first-rate  machinists.  The  com- 
petition for  employment  in  the  more  difficult  trades  is  therefore 
first  limited  by  Nature,  through  the  various  capacities  which 
she  bestows  upon  men ;  and  secondly,  by  the  necessity  of  edu- 
cation, which  not  all,  even  of  those  who  are  naturally  gifted, 
have  time,  money,  or  opportunity  to  obtain.  Engraving  has 
risen  to  be  one  of  the  fine  arts,  as  the  talent  for  practising  it 
with  the  highest  success  is  as  rare  as  that  of  a  great  painter  or 
19 


218 


DIFFERENCES    OF    WAGES. 


sculptor.  An  ordinary  engraver  may  not  earn  more  than  a 
watchmaker ;  but  a  single  copy  of  one  of  the  works  of  Raphael 
Morghen,  Sir  Robert  Strange,  Bartolozzi,  or  Piranesi,  now 
commands  a  high  price  in  the  market.  In  engineering,  the 
construction  of  machinery,  and  ship-building,  great  natural 
ability,  improved  by  education  and  practice,  may  obtain  remu- 
neration so  liberal  as  to  appear  extravagant.  The  services  of 
Paul  Moody  in  superintending  the  erection  of  the  machinery 
for  the  manufactories  at  Waltham  and  Lowell,  and  of  Tel- 
ford,  Stephenson,  and  Brunei  in  the  great  works  of  internal 
improvement  which  they  constructed  in  Great  Britain,  were 
paid  for  at  rates  proportioned  to  the  magnitude  of  the  enter- 
prises which  they  directed.  "  In  some  manual  employments," 
says  Mr.  Mill,  "  requiring  a  nicety  of  hand  which  can  only  be 
acquired  by  long  practice,  it  is  difficult  to  obtain,  at  any  cost, 
workmen  in  sufficient  numbers,  who  are  capable  of  the  most 
delicate  kind  of  work ;  and  the  wages  paid  to  them  are  only 
limited  by  the  price  which  purchasers  are  willing  to  give  for 
the  commodity  they  produce.  This  is  the  case  with  some 
working  watchmakers,  and  with  the  makers  of  astronomical 
and  optical  instruments.  If  workmen  competent  to  such  em- 
ployments were  ten  times  as  numerous  as  they  are,  there 
would  be  purchasers  for  all  which  they  could  make,  not  indeed 
at  the  present  prices,  but  at  those  lower  prices  which  would  be 
the  natural  consequence  of  lower  wages." 

In  what  are  called  the  liberal  professions,  however,  though  a 
protracted  and  expensive  education  is  required  for  admission 
to  them,  the  rates  of  compensation,  on  an  average,  are  very 
low,  —  sometimes  actually  lower  than  in  the  mechanic  trades. 
In  the  State  of  Ohio,  for  instance,  and,  it  may  be  presumed, 
in  most  of  the  other  Western  States,  the  salaries  of  the  clergy- 
men are  not  equal  to  the  wages  of  good  journeymen  black- 
smiths ;  the  former  do  not  receive  an  average  of  more  than 
$  500  a  year ;  the  latter  readily  obtain  two  dollars  a  day,  or 
over  $  600  a  year.  True,  some  of  the  clergymen,  especially 
in  the  Baptist  and  Methodist  denominations,  are  not  liberally 
educated  men ;  but  the  great  majority  have  completed  their 
training  both  at  college  and  in  the  professional  schools.  At 
the  bar,  also,  though  a  few  eminent  practitioners  make  great 
gains,  the  aggregate  earnings  of  the  whole  body  of  lawyers,  if 


DIFFERENCES    OF    WAGES.  219 

equally  distributed  among  them,  would  hardly  equal  the  aver- 
age wages  of  the  mechanics.  The  cause  of  the  discrepancy 
in  this  particular  case,  however,  will  be  explained  hereafter. 
Physicians  may  be  somewhat  better  paid  on  an  average, 
though  the  aggregate  earnings  of  then-  craft  are  capriciously 
distributed,  an  ignorant  and  impudent  quack  often  obtaining 
more  than  a  competent  and  thoroughly  instructed  practitioner. 
This  is  because  there  is  no  certain  criterion  of  the  physician's 
skill ;  whether  the  patient  lives  or  dies,  it  is  generally  doubtful 
whether  the  result  is  to  be  attributed  to  nature  or  the  doctor. 

Adam  Smith  justly  attributes  the  inadequate  compensation 
of  labor  in  the  liberal  professions,  first,  to  the  superior  dignity 
or  honorableness  of  such  labor,  which  is  an  offset  for  the  infe- 
rior pecuniary  reward;  secondly,  to  the  natural  confidence 
which  every  man  has  in  his  own  abilities  and  his  own  good 
fortune,  whereby  he  persuades  himself  that  he  shah1  draw  one 
of  the  few  great  prizes  in  the  law  or  the  church,  instead  of  one 
out  of  the  many  blanks  ;  and  thirdly,  so  far  as  literature  and  the 
sacred  ministry  are  concerned,  to  the  number  of  persons  who 
are  educated  for  those  occupations  at  the  public  expense.  The 
first  point  is  too  obvious  to  require  any  farther  illustration  than 
it  has  already  received ;  and  the  second  was  considered  (see 
page  45),  when  we  were  commenting  upon  what  may  be 
called  "  the  lottery  principle  "  in  human  nature,  whereby  san- 
guine visions,  and  the  pleasurable  excitement  of  a  pursuit  in 
which  success  is  wholly  uncertain,  must  be  made  our  conso- 
lation for  frequent  failure.  In  respect  to  the  last,  I  borrow  the 
language  of  Adam  Smith.  "  It  has  been  considered  as  of  so 
much  importance,  that  a  proper  number  of  young  people 
should  be  educated  for  certain  professions,  that  sometimes  the 
public,  and  sometimes  the  piety  of  private  founders,  have  es- 
tablished many  pensions,  scholarships,  exhibitions,  bursaries, 
&c.,  for  this  purpose,  which  draw  many  more  people  into  those 
trades  than  could  otherwise  pretend  to  follow  them.  In  all 
Christian  countries,  I  believe,  the  education  of  the  greater  part 
of  churchmen  is  paid  for  in  this  manner.  Very  few  of  them 
are  educated  altogether  at  their  own  expense.  The  long,  tedi- 
ous, and  expensive  education,  therefore,  of  those  who  are,  will 
not  always  procure  them  a  suitable  reward,  the  church  being 
crowded  with  people  who,  in  order  to  get  employment,  are 


220  DIFFERENCES    OF    WAGES. 

willing  to  accept  of  a  much  smaller  recompense  than  what 
such  an  education  would  otherwise  have  entitled  them  to  ;  and 
in  this  manner  the  competition  of  the  poor  takes  away  the  re- 
ward of  the  rich." 

In  the  United  States,  generally,  it  may  be  said,  that,  through 
the  efforts  of  Education  Societies  and  the  founders  and  bene- 
factors of  colleges,  the  clergy  are  educated  gratuitously,  —  a 
policy  very  well  designed  to  prevent  pulpits  from  becoming 
vacant,  but  not  so  likely  to  insure  the  respectability,  the  ade- 
quate compensation,  or  even  the  sincerity,  of  those  who  fill 
them.  It  is  to  be  feared  that  many  are  bribed,  through  the 
offer  of  a  liberal  education  without  charge,  to  enter  the  minis- 
try, though  they  have  no  peculiar  fitness,  and  not  even  any 
strong  desire,  for  the  sacred  calling.  Nay,  it  may  sometimes 
happen,  that  the  parents  of  a  child  who  is  unfitted  for  almost 
any  other  pursuit,  because  weak  in  body  and  not  very  strong 
in  mind,  may  be  tempted,  by  this  liberal  proffer,  to  make  a 
minister  of  him,  being  encouraged  to  believe,  like  the  mother 
of  Dominie  Sampson,  that  "  he  may  wag  his  pow  in  a  pulpit 
yet,"  though  he  cannot  wag  it  to  good  purpose  anywhere  else. 

"  Olim  truncus  eram  ficulnus,  inutile  lignum, 
Quum  fabcr,  incertus  scamnum  facerctne  Priapura, 
Maluit  esse  deum." 

In  respect  to  the  education,  in  part  gratuitous,  which  is 
offered  by  the  colleges  as  a  general  preparation  for  the  other 
professions,  though  the  effect  is  certainly  to  lessen  the  emolu- 
ments of  practitioners  by  increasing  the  number  of  competitors, 
sound  policy,  or  a  regard  for  the  best  interests  of  the  people, 
requires  that  it  should  be  continued.  Adam  Smith,  with  his 
usual  bias  towards  the  principles  of  free  trade,  would  have  the 
whole  matter  regulated  by  the  natural  operation  of  supply  and 
demand,  assuming  that,  if  more  lawyers,  physicians,  and  liter- 
ary or  scientific  men  are  needed,  their  rates  of  compensation 
would  be  raised,  and  thus  more  persons  would  be  tempted  to 
enter  these  professions,  even  at  the  cost  of  educating  them- 
selves. But  the  immediate  earnings  of  literary  and  scientific 
men,  as  already  explained,  are  inferior  to  their  merits,  and 
altogether  insufficient  for  their  wants ;  while  it  is  of  the  utmost 
importance  for  the  interests  of  the  public,  that  a  numerous 
class  of  highly  educated  men  should  exist  in  the  community, 


DIFFERENCES    OF    WAGES.  221 

capable  of  appreciating  each  other's  efforts,  and  of  aiding  the 
progress  of  letters,  science,  and  invention.  Besides,  many 
must  receive  the  benefits  of  a  liberal  culture,  in  order  that  the 
few  who  are  able  to  profit  by  it  in  the  highest  degree  may  be 
sure  not  to  miss  the  requisite  preparatory  training,  without 
which  even  their  eminent  abilities  may  not  produce  their 
proper  fruits.  Many  thousands  must  graduate  at  Oxford  and 
Cambridge,  in  order  that  a  possible  Milton,  Newton,  or  Bent- 
ley  may  not  be  hindered  from  benefiting  the  world  by  his 
genius.  It  is  a  commonplace  remark,  that  "  mute,  inglorious 
Miltons  "  probably  rest  in  every  village  churchyard.  That  is 
a  short-sighted  policy,  which  would  weigh  the  cost  of  institu- 
tions of  learning  against  only  the  average  result  upon  all  those 
who  are  trained  at  them ;  the  value  to  the  community  at  large 
of  the  services  of  such  men  as  have  been  named  is  literally  in- 
estimable ;  it  would  outweigh  the  expense  of  founding  and 
maintaining  universities  enough  to  educate  the  whole  people. 
This  consideration  is  even  strong  enough  to  justify  the  policy 
of  educating  most  clergymen  at  the  public  charge  ;  without  it, 
the  world  might  have  lost  the  preaching  of  Jeremy  Taylor, 
Jonathan  Edwards,  and  Thomas  Chalmers. 

Thirdly,  says  Adam  Smith,  "  the  wages  of  labor  in  different, 
occupations  vary  with  the  constancy  or  inconstancy  of  employ- 
ment. In  the  greater  part  of  manufactures,  a  journeyman  may 
be  pretty  sure  of  employment  almost  every  day  in  the  year 
that  he  is  willing  to  work.  A  mason  or  bricklayer,  on  the 
contrary,  can  work  neither  in  hard  frost  nor  in  foul  weather, 
and  his  employment  at  all  other  times  depends  upon  the  occa- 
sional calls  of  his  customers.  He  is  liable,  in  consequence,  to 
be  frequently  without  any.  What  he  earns,  therefore,  while 
he  is  employed,  must  not  only  maintain  him  while  he  is  idle, 
but  make  him  some  compensation  for  those  anxious  and  de- 
sponding moments  which  the  thought  of  so  precarious  a  situa- 
tion must  sometimes  occasion."  It  is  easy  to  see  that  the 
person  who  can  be  employed  only  a  part  of  the  time  ought  to 
receive  higher  wages  than  one  who  has  regular  work  and  con- 
stant pay ;  and  for  evident  reasons,  his  compensation  must  be 
larger.  On  account  of  the  irregularity  and  uncertainty  of  his 
occupation,  fewer  persons  will  be  disposed  to  engage  in  it; 
thus  the  competition  will  be  less,  and  he  will  be  able  to  raise 
19* 


222  DIFFERENCES    OF    WAGES. 

his  price,  until  the  increased  pay  affords  an  adequate  compen- 
sation for  the  inconstancy  of  the  employment. 

In  most  cases,  employers  take  all  the  risk ;  that  is,  they  in- 
sure regular  wages  to  their  hands,  whether  the  work  be  con- 
stant or  irregular,  lucrative  or  insufficient  to  pay  the  expenses. 
Thus,  the  driver  of  a  stage-coach  receives  the  same  pay, 
whether  the  vehicle  be  full  or  empty ;  and  the  clerk  in  a  store 
must  have  his  regular  salary,  though  business  is  sometimes 
dull,  and  he  has  little  to  do.  So,  also,  a  ship  must  be  manned 
by  sailors  enough  to  take  care  of  her  even  in  a  storm ;  and  the 
consequence  is,  that  in  ordinary,  pleasant  weather,  the  crew 
may  be  idle  more  than  half  of  the  time.  Sometimes,  however, 
the  person  employed  takes  the  risk,  and  his  wages  when  he  is 
at  work,  must  be  high  enough  to  compensate  him  for  occa- 
sional necessary  idleness.  Thus,  the  driver  of  a  hackney-coach 
is  paid  only  a  certain  proportion  of  what  he  can  earn  during 
the  day ;  and  the  crews  of  our  American  whaling-vessels  gen- 
erally "  go  upon  shares,"  as  it  is  termed  ;  that  is,  they  have  no 
monthly  wages,  but  receive  the  value  of  a  fixed  portion  of  the 
oil  that  they  take.  As  ships  sometimes  come  home  "  clean," 
or  without  any  oil,  so  that  they  obtain  nothing  for  one  or  two 
years'  labor,  their  share  of  a  full  cargo  ought  to  exceed,  and 
actually  does  considerably  exceed,  the  ordinary  amount  of  sea- 
men's wages  for  a  voyage  of  the  same  length. 

The  fourth  cause  assigned  by  Adam  Smith  for  variation  in 
the  rate  of  wages,  is  the  small  or  great  trust  that  must  be  re- 
posed in  the  person  employed.  Thus,  goldsmiths  and  jewel- 
lers are  paid  more  liberally  than  workers  in  brass  or  iron,  not 
on  account  merely  of  their  greater  skill,  and  in  spite  of  their 
labor  being  more  agreeable  and  less  fatiguing,  but  because  of 
the  greater  value  of  the  materials  with  which  they  are  in- 
trusted. "  We  trust  our  health  to  the  physician,  our  fortune, 
and  sometimes  our  life  and  reputation,  to  the  lawyer  and  attor- 
ney. Such  confidence  could  not  safely  be  reposed  in  people 
of  a  very  mean  or  low  condition.  Their  reward  must  be  such, 
therefore,  as  may  give  them  that  rank  in  the  society  which  so 
important  a  trust  requires.  The  long  time  and  the  great  ex- 
pense which  must  be  laid  out  in  their  education,  when  com- 
bined with  this  circumstance,  necessarily  enhance  still  further 
the  price  of  their  labor." 


DIFFERENCES    OF    WAGES.  223 

On  the  same  principle,  also,  those  who  are  intrusted  with 
the  handling  of  much  money,  such  as  the  cashiers  and  tellers 
of  banks,  the  treasurers  and  managers  of  manufacturing  and 
railroad  corporations,  must  receive  high  salaries.  It  may  be 
thought,  perhaps,  that  there  is  some  degradation  in  being  re- 
warded for  common  honesty,  as  men  ought  to  be  honest  with- 
out being  paid  for  it.  So  they  ought ;  but  what  they  are  paid 
for  is,  not  honesty,  but  the  reputation  for  honesty,  —  that  secu- 
rity which  is  found  in  their  well-known  previous  lives  and 
character,  and  in  the  general  circumstances  of  their  situation, 
that  they  will  be  faithful  to  their  trust.  Not  all,  not  even 
many  persons,  are  lucky  enough  to  be  well  known  to  the  com- 
munity at  large,  as  deserving  full  confidence  in  any  office,  how- 
ever much  exposed  to  temptation.  The  competition  for  such 
offices  being  thus  restricted  to  a  few,  they  are  enabled  to  raise 
the  price  of  their  services.  Sometimes  security  is  taken,  the 
persons  employed  being  required  to  give  bonds  to  a  heavy 
amount  for  their  fidelity  to  their  engagements.  In  this  case, 
there  is  no  need  of  their  integrity  being  well  known  to  the 
public  at  large  ;  it  is  enough  that  they  have  so  far  earned  the 
confidence  of  a  few  as  to  be  able  to  obtain  sufficient  bonds- 
men. The  contrivance  of  giving  bonds  thus  opens  the  com- 
petition, and  tends  to  reduce  salaries,  but  not  to  make  them 
so  low  as  they  would  be  if  no  bonds  were  required. 

Fifthly,  says  Adam  Smith,  « the  wages  of  labor  in  different 
employments  vary  according  to  the  probability  or  improba- 
bility of  success  in  them.  In  the  greater  part  of  the  mechanic 
trades,  success  is  almost  certain,  but  very  uncertain  in  the  lib- 
eral professions.  Put  your  son  apprentice  to  a  shoemaker, 
and  there  is  little  doubt  of  his  learning  to  make  a  pan:  of 
shoes  ;  but  send  him  to  study  the  law,  and  it  is  at  least  twenty 
to  one  if  he  ever  makes  such  proficiency  as  will  enable  him  to 
live  by  the  business.  In  a  perfectly  fair  lottery,  those  who  draw 
the  prizes  ought  to  gain  all  that  is  lost  by  those  who  draw  the 
blanks.  In  a  profession  where  twenty  fail  for  one  that  suc- 
ceeds, that  one  ought  to  gain  all  that  should  have  been  gained 
by  the  unsuccessful  twenty.  The  counsellor  at  law,  who  per- 
haps, at  forty  years  of  age,  begins  to  make  something  by  his 
profession,  ought  to  receive  the  retribution,  not  only  of  his  own 
so  tedious  and  expensive  education,  but  of  that  of  more  than 


224  DIFFERENCES    OF    WAGES. 

twenty  others,  who  are  never  likely  to  make  anything  by  it. 
How  extravagant  soever  the  fees  of  counsellors  at  law  may 
sometimes  appear,  their  real  retribution  is  never  equal  to  this." 

The  average  gains  of  practitioners  at  the  bar  are  reduced  by 
the  great  number  of  those  who  enter  the  profession  without 
depending  upon  it  for  support,  as  they  have  independent 
means  of  livelihood,  and  desire  only  a  genteel  excuse  for  doing 
nothing.  Some,  also,  have  recourse  to  the  law,  because  it  is 
not  only  a  highly  reputable  business,  but  is  an  easy  mode  of 
making  the  transition  to  political  life.  Many  thus  appear  to 
be  waiting  for  clients,  who  are  really  on  the  look-out  only  for 
a  chance  of  being  elected  to  the  legislature  or  to  Congress. 
Though  these  two  classes  of  persons  do  not  enter  actively  into 
the  competition  for  fees,  their  presence  diminishes  the  chances 
of  success  for  those  who  hope  to  rise  in  the  profession ;  some 
business  occasionally  falls  into  their  hands,  and  they  increase 
the  crowd  in  the  midst  of  which  merit  and  ability  often  remain 
hidden  from  the  world.  Hence,  as  Adam  Smith  remarks, 
while  the  ordinary  income  of  shoemakers  and  blacksmiths  ex- 
ceeds their  ordinary  expenditure,  it  will  be  found  that  the 
annual  gains  of  the  lawyers,  as  a  body,  bear  but  a  small  pro- 
portion to  their  annual  expenses.  The  profession  is  but  a  lot- 
tery at  the  best,  even  for  those  who  diligently  qualify  them- 
selves for  it,  and  found  upon  it  their  only  hopes  of  success ;  the 
splendor  of  a  few  prizes  in  it  is  apt  to  dazzle  the  judgment  of 
many,  who,  by  a  cool  calculation  of  the  chances,  would  be  in- 
duced to  try  a  different  occupation. 

I  do  not  mean  that  success  is  more  doubtful  at  the  bar  than 
in  any  other  business.  In  this  country,  undoubtedly,  trade  is 
equally  uncertain,  for  it  is  said  that  three  fourths  of  those  who 
engage  in  it  become  insolvent  in  the  course  of  the  first  five 
years ;  and  of  those  who  escape  the  gulf  of  bankruptcy,  not 
one  in  ten  succeeds  in  amassing  a  fortune.  But  "  uncertainty 
of  success,"  as  Mr.  Senior  remarks,  "  cannot  well  affect  the 
wages  of  common  labor,  since  no  man,  unless  he  be  to  a  cer- 
tain extent  a  capitalist,  unless  he  have  a  fund  for  his  interme- 
diate support,  can  devote  himself  to  an  employment  in  which 
the  success  is  uncertain."  He  remarks,  moreover,  "  that  there 
are  two  sorts  of  uncertainty.  In  some  cases,  the  hazard  is 
essentially  connected  with  the  employment  itself,  and  recurs, 


DIFFERENCES    OF    WAGES.  225 

in  about  an  equal  degree,  at  every  operation.  Smuggling  and 
the  manufacture  of  gunpowder  are  instances.  Experience  and 
skill  may  somewhat  diminish  the  risk ;  but  the  best  smuggler 
and  the  best  maker  of  gunpowder  probably  each  suffers  an 
average  amount  of  loss.  But  there  are  employments  in  which 
success,  if  once  attained,  is  permanent.  Such  is  often  the  case 
in  mining.  That  mining  is  generally  the  road  to  ruin  is  noto- 
rious in  all  mining  countries ;  but  there  are  miners  who  have 
never  suffered  a  loss.  The  same  may  be  said  of  the  liberal 
professions.  Granting  them  to  be  as  uncertain  as  Adam 
Smith  believed  them  to  be,  the  evil  to  which  that  uncertainty 
refers  is  experienced  only  by  those  who  fail.  To  those  who 
succeed,  they  afford  a  revenue  eminently  safe  and  regular. 
Their  uncertainty  is  personal.  It  arises  from  the  error  to 
which  every  man  is  subject,  when  he  compares  his  own  qualifi- 
cations with  those  of  his  rivals.  If  he  be  found  on  the  actual 
trial  inferior,  his  failure  is  irretrievable ;  in  the  other  alterna- 
tive, his  success  is  as  permanent." 

The  inequalities  thus  far  considered  proceed  from  causes 
that  are  inherent  in  the  employments  themselves.  But  there 
are  others,  as  Adam  Smith  remarks,  which  arise  from  the  pe- 
culiar laws  and  customs  of  different  nations,  and  which  operate 
by  obstructing  the  competition  that  would  otherwise  reduce 
wages  and  profits  to  a  level.  If  other  things  are  equal,  and  if 
persons  are  left  to  their  own  choice,  they  will  flock  into  the 
occupations  that  are  more  lucrative,  and  will  desert  those 
which  are  less  productive,  until  the  increased  supply  of  labor 
and  capital  in  the  former,  and  the  diminished  supply  in  the 
latter,  bring  about  equality  between  the  two  classes.  But  peo- 
ple are  not  always  left  to  themselves ;  hinderances  often  exist, 
sometimes  created  by  the  laws,  sometimes  only  by  the  habits 
and  feelings  of  the  people,  which  obstruct  the  free  movement 
of  labor  and  capital  from  one  occupation  to  another. 

The  most  remarkable  of  the  hinderances  existing  by  force  of 
law  are  the  exclusive  privileges  that  were  granted  to  the  cor- 
porations, or  guilds  of  trade,  which  formerly  existed  in  almost 
every  city  in  Europe,  but  which  are  now  rapidly  dying  out 
All  the  persons  practising  any  one  art  or  trade  in  a  particular 
city,  such  as  the  tailors,  the  brewers,  the  tanners,  the  gold- 
smiths, &c.,  were  united  into  a  company,  which  received  from 


226  DIFFERENCES    OF    WAGES. 

the  government  by  charter  the  exclusive  right  to  practise  their 
vocation.  The  competition  in  this  art  or  trade  was  thus  re- 
stricted to  those  who  had  been  made  free  of  the  company; 
and  no  person  could  become  free  of  the  trade,  till  he  had  served 
an  apprenticeship  to  it,  usually  for  seven  years,  and  had  com- 
plied with  other  regulations,  which  were  often  intentionally 
made  numerous  and  vexatious,  in  order  to  prevent  too  many 
persons  from  entering  the  business  and  diminishing  its  profits. 
Thus,  the  number  of  apprentices  which  each  master  might  have 
was  often  determined  by  law,  and  sometimes  a  heavy  fee  or 
fine  was  exacted,  before  the  apprentice  who  had  completed  his 
term  could  become  free  of  the  craft.  "  In  their  greatest  pros- 
perity, these  fraternities,  more  especially  in  the  metropolis,  be- 
came important  bodies,  in  which  the  whole  community  was 
enrolled ;  each  had  its  distinct  common  hall,  made  by-laws  for 
the  regulation  of  its  particular  trade,  and  had  its  common  prop- 
erty." Membership  became  the  principal  avenue  of  admission 
to  the  general  franchise  of  the  municipality  ;  and  as  the  imped- 
iments to  becoming  freemen  were  multiplied,  the  manage- 
ment of  civic  affairs  gradually  fell  into  the  hands  of  a  little 
oligarchy.  Sometimes,  the  royal  charters  expressly  vested  the 
local  government,  and  even  the  immediate  election  of  mem- 
bers of  Parliament,  in  small  councils,  originally  nominated  by 
the  crown,  and  ever  after  self-elected.  But  of  late  years,  the 
laws  requiring  apprenticeship  have  been  repealed  or  essentially 
amended,  and  in  England,  the  Reform  Bill,  together  with  the 
Municipal  Reform  Act,  has  swept  away  nearly  all  the  exclu- 
sive privileges  of  these  incorporated  trades ;  but  many  of  the 
companies,  especially  in  London,  still  exist,  having  the  owner- 
ship and  management  of  large  funds,  and  some  local  dignities 
and  rights,  which  cause  membership  of  them  to  be  highly 
prized.  There  are,  in  all,  eighty-one  of  these  incorporated 
trades  in  London,  twelve  of  them  being  called  the  Great  Com- 
panies, and  from  one  of  these  the  Lord  Mayor  must  be  chosen. 
They  have  become  charitable,  rather  than  political  or  trading 
institutions,  and  they  expend  their  revenues  partly  in  festivi- 
ties, but  principally  in  pensions  to  widows  and  decayed  breth- 
ren, the  support  of  schools,  &c.* 

*  These  incorporated  trades  must  not  be  confounded  with  what  are  commonly 


DIFFERENCES    OF    WAGES.  227 

"  All  such  incorporations,"  says  Adam  Smith,  "  were  an- 
ciently called  Universities,  which  indeed  is  the  proper  Latin 
name  for  any  incorporation  whatever.  The  University  of 
Smiths,  the  University  of  Tailors,  &c.,  are  expressions  which 
we  commonly  meet  with  in  the  old  charters  of  ancient  towns. 
When  those  particular  incorporations  which  are  now  pecu- 
liarly called  Universities  were  first  established,  the  term  of 
years  which  it  was  necessary  to  study,  in  order  to  obtain  the 
degree  of  Master  of  Arts,  appears  evidently  to  have  been  cop- 
ied from  the  term  of  apprenticeship  in  common  trades,  of 
which  the  incorporations  were  much  more  ancient.  As  to 
have  wrought  seven  years  under  a  master  properly  qualified 
was  necessary  in  order  to  entitle  any  person  to  become  a  mas- 
ter, and  to  have  himself  apprentices  in  a  common  trade,  so  to 
have  studied  seven  years  under  a  master  properly  qualified  was 
necessary  to  become  a  Master,  Teacher,  or  Doctor  (words  an- 
ciently synonymous)  in  the  liberal  arts,  and  to  have  scholars 
or  apprentices  (words  likewise  originally  synonymous)  to 
study  under  him." 

The  ostensible  purpose  of  the  incorporated  trades  was  like 
that  of  our  modern  inspection  laws,  to  insure  the  good  or  mer- 
chantable quality  of  the  commodities  offered  for  sale ;  this  end 
it  was  proposed  to  effect,  by  ordaining  that  the  articles  should 
be  manufactured  only  by  practised  and  skilful  workmen,  who 


called  corporations,  instituted  for  manufacturing,  banking,  turnpike,  or  railroad  pur- 
poses, here  in  America ;  though  the  similarity  of  name  and  origin  has  directed  much 
unfounded  political  odium  against  the  latter.  The  old  guilds  of  trade  were  proper 
monopolies,  no  other  persons  being  permitted  to  exercise  the  craft  which  was  their 
special  vocation.  But  our  modern  corporations  have  no  exclusive  privileges ;  any 
individual,  or  another  incorporated  company,  may  begin  competition  with  them  in 
the  same  town  or  village.  Sometimes,  indeed,  when  the  object  is  one  of  great  pub- 
lic utility,  as  to  open  a  new  avenue  of  transit  and  communication,  a  clause  is  in- 
serted in  the  charter,  that  no  rival  company  shall  be  permitted  to  build  a  similar 
road  or  bridge,  parallel  to  theirs,  and  within  a  small  distance  from  it,  for  a  given 
number  of  years.  Some  such  boon  from  the  legislature  may  be  needed  to  induce 
capitalists  to  run  the  risk  of  first  constructing  such  a  work  for  the  public  benefit  and 
their  own  possible  emolument.  But  such  privileges  are  now  not  often  granted,  and 
are  not  always  respected,  even  when  the  public  faith  is  pledged  for  them.  The 
charter  is  usually  granted  only  to  enable  persons  of  small  property  to  club  their 
means,  and  thus  to  effect  by  combination  what  no  individual  is  rich  enough  to  do 
singly.  Hence,  as  already  explained,  they  are  true  democratic  institutions,  on  the 
limited  partnership  principle,  which  has  very  recently  been  legalized  and  applied 
with  much  success  both  in  England  and  America. 


228  DIFFERENCES    OF    WAGES. 

had  served  a  full  apprenticeship  to  the  craft.  But  as  Adam 
Smith  remarks,  "  the  institution  of  long  apprenticeships  can 
give  no  security  that  insufficient  workmanship  shall  not  fre- 
quently be  exposed  to  public  sale.  When  this  is  done,  it  is 
usually  the  effect  of  fraud,  and  not  of  inability ;  and  the  long- 
est apprenticeship  can  give  no  security  against  fraud."  The 
inspection-mark  upon  a  barrel  of  flour,  or  salted  meat,  or 
pickled  fish,  or  the  name  of  the  manufacturer  printed  upon  a 
bale  of  cloth,  is  a  much  better  guaranty  of  the  quality  of  the 
article.  Besides,  long  apprenticeships  are  not  needed,  as  the 
mystery  of  any  handicraft  can  be  learned  in  less  than  a  year, 
so  that  the  operative  can  work,  not  as  speedily  indeed,  but  as 
well,  that  is,  he  can  turn  out  as  perfect  an  article,  as  any  vet- 
eran in  the  business.  At  any  rate,  he  will  be  the  quickest  to 
learn,  who  has  the  prospect  of  being  fully  paid  just  as  soon  as 
he  can  complete  the  article  in  a  workmanlike  manner,  and 
who  is  furthermore,  required  to  pay  for  the  tools  and  materials 
that  he  spoils.  The  real  purpose  of  the  guild  was  to  maintain 
a  monopoly  of  the  trade,  under  the  cover  of  which,  purchasers 
were  obliged  to  take  what  they  offered  for  sale,  at  such  prices 
as  they  chose  to  affix,  or  do  without  the  commodity  altogether. 
Individual  members  of  the  company,  it  is  true,  might  compete 
with  each  other ;  but  their  competition  was  always  subject  to 
the  by-laws  enacted  by  the  council  of  the  guild. 

Old  expedients  come  up  for  renewed  trial,  after  the  lapse  of 
centuries,  with  only  a  change  of  name.  The  modern  Trades' 
Unions,  strikes,  and  associations  of  operatives,  are  but  the  an- 
cient guilds  revived,  their  avowed  object  being  to  raise  wages 
and  prices  by  diminishing  the  number  of  competitors.  Even 
here  in  America,  where  the  utmost  freedom  of  competition  has 
been  the  life  of  trade,  and  there  are  fewer  restrictions  upon  in- 
dustry, either  legal  or  consuetudinary,  than  in  any  country 
upon  earth,  at  a  recent  strike  of  the  journeyman  printers,  the 
Union  required  that  only  a  certain  number  of  apprentices 
should  be  employed  in  each  office,  in  proportion  to  the  num- 
ber of  journeymen  in  it,  and  that  women  or  girls  should  not 
be  employed  to  set  types,  though  it  is  an  occupation  in  which 
they  are  nearly  as  well  fitted  to  excel  as  in  the  use  of  the 
needle.  Mr.  Laing,  the  distinguished  traveller  and  political 
economist,  seriously  argues  in  favor  of  such  measures,  on  the 


DIFFERENCES    OF    WAGES.  229 

ground  that  "  labor  itself  is  a  property,  entitled  to  legal  protec- 
tion as  much  as  land,  or  goods,  or  any  kind  of  property  that 
labor  produces  "  ;  and  that  "  the  supply  of  the  public  with  all 
the  articles  of  handicraft,  or  labor  of  skill,  [should  be]  con- 
fined to  those  who  had  acquired  a  property  in  that  labor." 

Here  appears  to  be  a  confusion  of  thought ;  labor  is  rightly 
considered  as  property,  and  is  most  effectually  protected  as 
such,  when  it  can  be  applied  to  any  purpose,  or  in  any  occu- 
pation, which  the  laborer  prefers.  To  create  any  impediment 
to  the  transition  of  labor  from  one  employment  to  another,  is 
not  to  protect,  but  to  violate,  the  essential  rights  of  industry. 
To  give  to  any  individual,  or  any  association,  the  monopoly 
of  any  article  or  any  employment,  is  to  create  in  the  favored 
class  a  right  of  property  in  other  men's  labor,  —  that  is,  a  right 
to  prevent  all  other  persons  from  selecting  their  own  occupa- 
tions, and  making  the  best  use  that  they  can  of  their  physical 
and  mental  powers ;  it  is  also  to  tax  the  whole  community  for 
the  benefit  of  the  favored  class,  by  compelling  the  former  to 
pay  such  a  price  for  the  commodity,  or  such  wages  for  the 
labor,  as  the  latter  may  require.  Prices  are  equitably  adjusted, 
when  the  seller  says  to  the  purchaser,  '  Pay  me  what  I  ask,  or 
manufacture  the  article  for  yourself.'  The  ancient  incorpo- 
rated companies  and  the  modern  Trades'  Unions  say,  '  Pay 
me  what  I  ask,  or  do  without  the  article  altogether ;  you  shall 
not  have  the  option  of  manufacturing  the  article  for  yourself.' 
How  does  Mr.  Laing  suppose,  that  the  operatives  in  any  craft, 
whether  they  have  served  a  long  apprenticeship  to  it  or  not, 
can  have  "  acquired  a  property  in  that  labor  "  ?  Unquestion- 
ably they  are  entitled  to  prosecute  it  themselves ;  but  they 
have  no  right,  either  natural  or  acquired,  to  keep  other  persons 
out  of  the  same  employment. 

Adam  Smith  takes  a  more  correct  view  of  the  subject  when 
he  says :  "  The  property  which  every  man  has  in  his  own  labor, 
as  it  is  the  original  foundation  of  all  other  property,  so  it  is  the 
most  sacred  and  inviolable.  The  patrimony  of  a  poor  man 
lies  in  the  strength  and  dexterity  of  his  hands ;  and  to  hinder 
him  from  employing  this  strength  and  dexterity  in  what  man- 
ner he  thinks  proper,  without  injury  to  his  neighbor,  is  a  plain 
violation  of  this  most  sacred  property.  It  is  a  manifest  en- 
croachment upon  the  just  liberty  both  of  the  workman  and  of 
20 


230  DIFFERENCES    OF    WAGES. 

those  who  might  be  disposed  to  employ  him.  As  it  hinders 
the  one  from  working  at  what  he  thinks  proper,  so  it  hinders 
the  others  from  employing  whom  they  think  proper.  To  judge 
whether  he  is  fit  to  be  employed,  may  surely  be  trusted  to  the 
discretion  of  the  employers  whose  interest  it  so  much  con- 
cerns." 

These  principles,  however,  are  not  of  universal  application ; 
an  exception  should  be  made  in  the  case  of  the  restraints  that 
are  imposed  by  the  laws  of  most  countries  upon  admission 
into  the  learned  professions.  Usually,  the  purchaser  is  the  best 
judge  of  the  quality  of  the  goods  that  he  buys,  and  the  charac- 
ter of  the  person  that  he  deals  with ;  a  regard  for  his  own  in- 
terest will  protect  him  against  fraud  more  effectually  than  any 
regulations  which  the  government  can  devise.  But  it  is  not 
so,  when  he  buys  the  services  of  a  physician.  Health  or  sick- 
ness, life  or  death,  then  depends  upon  the  competent  informa- 
tion and  skill  of  the  person  employed  by  him ;  and  of  these 
qualities  he  is  a  very  poor  judge,  as  sickness  may  have  been  a 
rare  occurrence  in  his  family,  as  the  consequences  of  an  error 
may  be  fatal,  and  as  the  event  indicates  but  very  imperfectly 
the  beneficial  or  injurious  consequences  of  the  medical  treat- 
ment pursued.  A  plausible  charlatan  may  easily  impose  upon 
the  credulity  of  the  public,  and  many  valuable  lives  may  be 
lost  before  his  ignorance  and  presumption  can  be  fully  ex- 
posed. Most  governments  attempt  to  protect  the  community 
against  such  injury,  by  multiplying  restrictions  upon  irregular 
practitioners,  and  extending  the  full  privileges  of  the  profession 
only  to  those  who  have  completed  a  prescribed  course  of  edu- 
cation, and  have  obtained  a  diploma,  or  certificate  of  compe- 
tency, from  a  board  of  duly  qualified  examiners.  A  similar 
policy  is  usually  pursued  with  respect  to  lawyers  and  clergy- 
men, though  the  reasons  in  its  favor  are  not  so  conclusive  as 
in  the  case  of  physicians.  Ignorance  and  deception  at  the  bar 
or  in  the  pulpit  are  more  easily  detected  than  in  the  sick- 
room. 

I  have  already  intimated  that  competition  for  employment  is 
sometimes  restricted,  not  only  by  law,  but  by  the  customs  of 
the  country,  or  by  the  habits  and  feelings  of  the  people.  In 
the  United  States,  mobility  of  fortune,  station,  and  employ- 
ment is  the  most  striking  feature  of  society ;  no  impediment 


DIFFERENCES    OF    WAGES.  23J 

is  created  by  law  or  fashion  to  the  most  frequent  and  sudden 
changes  of  position  and  business.  Thus  an  equalizing  process 
is  constantly  going  on  with  respect  both  to  wages  and  profits ; 
no  one  profession  or  employment  can  enjoy  even  a  momentary 
advantage,  without  sharing  it  among  a  crowd  of  competitors. 
Li  England,  it  is  far  otherwise ;  a  well-established  and  clearly 
defined  gradation  of  ranks  has  existed  so  long,  and  has  so 
moulded  the  habits  and  expectations  of  the  people,  that  com- 
paratively few  think  of  stepping  out  of  the  station  or  the  busi- 
ness to  which  they  were  born.  The  larger  emoluments  and 
superior  advantages  of  a  different  position  hardly  attract  their 
notice,  and  certainly  excite  no  emulation  or  regret. 

Mr.  J.  S.  Mill  has  given  a  lively  picture  of  this  condition  of 
things,  and  its  consequences.  "  So  complete,"  he  says,  "  has 
hitherto  been  the  separation,  so  strongly  marked  the  line  of 
demarcation,  between  the  different  grades  of  laborers,  as  to  be 
almost  equivalent  to  a  hereditary  distinction  of  caste ;  each 
employment  being  chiefly  recruited  from  the  children  of  those 
already  employed  in  it,  or  in  employments  of  the  same  rank 
with  it  in  social  estimation,  or  from  the  children  of  persons 
who,  if  originally  of  a  lower  rank,  have  succeeded  in  raising 
themselves  by  their  exertions.  The  liberal  professions  are 
mostly  supplied  by  the  sons  of  either  the  professional  or  the 
idle  classes ;  the  more  highly  skilled  manual  employments  are 
filled  up  from  the  sons  of  skilled  artisans,  or  of  the  class  of 
tradesmen  who  rank  with  them ;  the  lower  classes  of  skilled 
employments  are  in  a  similar  case ;  and  unskilled  laborers, 
with  occasional  exceptions,  remain  from  father  to  son  in  their 
pristine  condition.  Consequently,  the  wages  of  each  class 
have  hitherto  been  regulated  by  the  increase  of  its  own  popu- 
lation, rather  than  of  the  general  population  of  the  country. 
If  the  professions  are  overstocked,  it  is  because  the  class  of 
society  from  which  they  have  always  mainly  been  supplied 
has  greatly  increased  in  number,  and  because  most  of  that 
class  have  numerous  families,  and  bring  up  some,  at  least,  of 
their  sons  to  professions."  It  would  be  more  correct  to  say, 
that  the  learned  professions  are  overstocked  because  they  are 
recruited  from  every  rank  in  society  above  that  of  the  artisans ; 
the  sons  of  merchants  being  ambitious  of  admission  to  them, 
and  the  younger  sons  of  the  landed  gentry  and  the  nobility,  as 


232  DIFFERENCES    OF    WAGES. 

well  as  of  professional  men  themselves,  finding  in  them,  and  in 
the  service  of  government,  the  only  means  which  the  right  of 
primogeniture  has  left  them  of  obtaining  a  livelihood  without 
forfeiting  the  social  position  to  which  they  were  born.  It  is 
the  fixity  of  the  other  ranks  in  the  kingdom,  and  the  institu- 
tions which  are  designed  to  maintain  that  fixity,  which  indi- 
rectly operate  to  swell  the  number  of  applicants  for  admission 
to  the  learned  professions  and  to  offices  under  government. 
"  If  the  wages  of  artisans,"  continues  Mr.  Mill,  "  remain  so 
much  higher  than  those  of  common  laborers,  it  is  because  arti- 
sans are  a  more  prudent  class,  and  do  not  marry  so  early  or  so 
inconsiderately." 

In  England,  and,  to  a  small  extent,  in  some  of  the  States  of 
this  country,  an  obstacle  to  the  free  circulation  of  labor  is  cre- 
ated by  the  poor  laws.  A  town  or  parish  is  bound  to  support 
those  paupers  only  who  were  born  in  it,  or  who,  in  various 
ways  specified  by  the  laws,  have  obtained  a  "  settlement " 
within  its  limits.  Sometimes,  forty  days'  undisturbed  resi- 
dence were  made  sufficient  for  obtaining  a  settlement ;  more 
stringent  regulations  required  that  the  person  should  have  been 
assessed  to  parish  rates  and  paid  them,  or  should  have  served 
an  apprenticeship  there,  or  have  been  hired  into  service  there 
and  remained  in  such  service  for  a  full  year.  Those  who  have 
not  complied  with  these  requisites  may  be  warned  off,  or  sent 
home  to  the  parish  where  they  belong.  Through  such  regula- 
tions, it  is  evident  that  there  may  be  a  superfluity  of  labor  in 
one  place,  and  considerable  deficiency  of  it  in  another,  and 
that  industry  may  be  very  unequally  compensated  in  different 
districts.  Frequent  litigation  arises  under  the  law  of  settle- 
ment, as  the  facts  in  each  case  are  often  imperfectly  known  or 
difficult  to  be  proved;  and  cases  of  extreme  hardship  some- 
times happen,  as  when  a  family  reduced  by  poverty  and  sick- 
ness are  forcibly  removed  to  a  distance  from  the  place  which 
they  have  chosen  for  their  home,  or  are  sent  travelling  over  the 
whole  country  in  search  of  the  parish  to  which  they  rightfully 
belong.  But  as  I  have  already  intimated,  the  evil  is  not  one 
of  much  moment  here  in  America,  where  the  wages  of  labor 
are  high,  and  where  there  is  but  little  pauperism  among  the 
native  born,  and  that  little  can  be  supported  at  insignificant 
expense.  No  great  pains,  therefore,  are  taken  to  prevent  a 
person  from  obtaining  a  settlement  wherever  he  likes. 


DIFFERENCES    OF    WAGES.  233 

But  the  great  influx  of  foreign  immigrants,  many  of  whom 
are  extremely  poor,  while  some  were  paupers  at  home,  and 
have  been  sent  over  to  this  country  by  the  parish  authorities 
only  to  get  rid  of  the  expense  of  their  maintenance,  makes  this 
subject  one  of  considerable  importance  for  the  States  on  the 
Atlantic  coast.  The  charge  of  foreign  paupers  is  assumed  by 
the  individual  States,  as  the  matter  does  not  come  within  the 
province  of  our  restricted  national  government,  and  as  no  one 
town  or  district,  more  than  another,  is  fairly  chargeable  with 
the  support  of  this  class  of  the  poor.  To  require  the  ship- 
master who  brings  them  over  to  give  bonds  that  they  shall  not 
become  chargeable  as  paupers,  or  to  levy  a  duty  on  all  immi- 
grants, so  as  to  form  a  fund  for  the  support  of  the  poor  among 
them,  are  measures  which,  though  generally  adopted,  are  of 
doubtful  expediency  and  legality.  Payment  of  the  bonds  is 
easily  evaded  when  any  length  of  time  has  intervened,  or  when 
the  foreign  poor  have  wandered  into  the  inland  States ;  and 
the  fund  collected  in  Massachusetts  or  New  York,  under  a 
doubtful  authority,  as  it  belongs  to  Congress  alone  to  regulate 
foreign  commerce,  cannot  be  made  available  for  the  expenses 
of  pauperism  in  Connecticut  or  Pennsylvania.  As  the  evil 
becomes  greater  with  the  now  constantly  increasing  flood  of 
immigration,  some  comprehensive  measure  will  probably  be 
devised  to  meet  it,  which  will  require  the  joint  action  of  Con- 
gress and  the  State  legislatures. 

Mr.  Senior  justly  remarks,  that  "  the  difficulty  with  which 
labor  is  transferred  from  one  occupation  to  another  is  the  prin- 
cipal evil  of  a  high  state  of  civilization.  It  exists  in  proportion 
to  the  division  of  labor.  In  a  savage  state,  almost  every  man 
is  equally  fit  to  exercise,  and  in  fact  does  exercise,  almost  every 
employment.  But  in  the  progress  of  improvement,  two  cir- 
cumstances combine  to  render  narrower  and  narrower  the  field 
within  which  a  given  individual  can  be  profitably  employed. 
In  the  first  place,  the  operations  in  which  he  is  engaged  be- 
come fewer  and  fewer ;  in  a  large  manufactory,  the  man  who 
is  engaged  in  one  of  these  operations  has  little  experience  in 
any  of  the  others.  And  in  the  second  place,  the  skill  which 
the  division  of  labor  gives  to  each  distinct  class  of  artificers 
generally  prevents  whatever  peculiar  dexterity  an  individual 
may  have  from  being  of  any  value  in  a  business  to  which  he 
20* 


234  DIFFERENCES    OF    AVAGES. 

has  not  been  brought  up.  A  workman  whose  specific  labor 
has  ceased  to  be  in  demand,  finds  every  other  long-established 
employment  filled  by  persons  whose  time  has  been  devoted  to 
it  from  the  age  at  which  their  organs  were  still  pliable  and 
their  attention  fresh." 

This  subject  is  excellently  illustrated  by  Mr.  Laing,  with 
reference  to  the  qualifications  of  emigrants  to  perform  the 
novel  tasks  imposed  upon  them  by  their  change  of  residence. 
"  Two  hundred  years  ago,"  he  says,  "  when  the  peopling  of 
the  old  American  colonies  was  going  on,  the  great  mass  of  the 
population  of  the  mother  country  was  essentially  agricultural ; 
but  every  working  man  could  turn  his  hand  to  various  kinds 
of-  work,  as  well  as  to  the  plough.  He  was  partly  a  smith, 
carpenter,  wheelwright,  stone-mason,  shoemaker.  The  useful 
arts  were  not,  as  now,  entirely  in  the  hands  of  artisans  bred  to 
no  other  labor  but  their  own  trade  or  art ;  very  expert,  skilful, 
and  cheap  producers  in  that,  but  not  used  to,  or  acquainted 
with,  any  other  kind  of  work.  This  inferior  stage  of  civiliza- 
tion, in  which  men  were  not  cooperative  to  the  same  extent  as 
now,  but  every  man  did  a  little  at  everything,  and  made  a 
shift  with  his  own  unaided  workmanship  and  production,  was 
a  condition  of  society  very  favorable  to  emigration-enterprise 
and  to  colonization.  It  continues  still  in  the  United  States, 
and  is  the  main  reason  why  their  settlers  in  the  backwoods  are 
more  handy,  shift  better  for  themselves,  and  thrive  better,  than 
the  man  from  this  country,  who  has  been  all  his  life  engaged 
in  one  branch  of  industry,  and  in  that  has  had  the  cooperation 
of  many  trades  preparing  his  tools  and  the  materials  for  his 
work. 

"  Another  advantage  for  emigration  in  that  state  of  society 
which  we  in  Great  Britain  have  entirely  outgrown,  was,  that 
the  female  half  of  the  population  contributed  almost  as  much 
as  the  male  half  to  the  subsistence  of  a  family,  especially  an 

emigrant  family In  the  days  of  King  James,  and  of 

Charles  I.  and  Charles  II.,  and  down  even  to  the  end  of  the 
last  century,  the  emigrant  could  reckon  upon  the  household 
work  of  the  females  of  his  family  as  more  or  less  profitable, 
and  at  least  saving,  by  the  production  of  all  clothing  material. 
In  genteel  families  at  home,  all  the  family  linen  and  cloth  for 
common  wear,  and  often  some  for  sale  in  the  country  towns, 


DIFFERENCES    OF    WAGES.  235 

was  produced  by  household  work.  The  progress  of  society  to 
a  higher  state  of  material  refinement  has  entirely  superseded 
such  family  production.  Cooperative  labor  in  factories  sup- 
plies the  public  with  much  better  and  finer  goods ;  and  the 
public  taste  is  so  much  refined  by  the  continual  enjoyment  of 
finer  articles,  that  the  old  mode  and  quality  of  production 
would  not  satisfy  it  now ;  but  that  former  state  was  more  fa- 
vorable to  emigration  than  our  present  more  advanced  social 
condition.  There  seems  to  be  a  stage  in  the  progress  of  na- 
tions at  which  they  can  throw  off  swarms  with  most  success. 
A  nation,  like  an  individual,  may  become  too  refined  for  colo- 
nizing ;  its  social  state  too  cooperative ;  men  too  dependent  on 
other  men  for  the  gratification  of  acquired  tastes  and  habits, 
which  have  become  part  of  their  nature,  and  interwoven  with 
the  daily  life  even  of  the  poorer  classes."  * 

The  case  of  household  or  home  manufactures,  here  alluded 
to  by  Mr.  Laing,  is  an  interesting  one,  as  it  shows  that,  under 
certain  circumstances,  persons  may  be  willing  to  work,  and 
may  find  it  profitable  to  work,  for  much  less  than  the  ordinary 
compensation  of  labor  in  their  neighborhood.  An  agricultural 
family  has  considerable  leisure  time  in  the  course  of  the  year, 
the  winter  being  a  period  of  almost  entire  suspension  of  their 
customary  tasks.  This  leisure  they  may  profitably  devote  to 
any  species  of  manufacture  which  can  be  pursued  at  home,  at 
intervals,  and  without  the  aid  of  costly  tools;  for  however 
poorly  such  labor  may  be  compensated,  its  proceeds  are  all 
clear  gain.  The  time  would  be  entirely  lost,  if  it  were  not 
thus  employed.  Thus,  spinning  and  knitting  may  continue  to 
be  carried  on  by  hand  in  many  an  humble  family,  long  after 
the  most  perfect  machinery  for  performing  these  processes  has 
been  invented,  and  the  prices  of  the  articles  spun  or  knit  have 
consequently  been  reduced  to  a  very  low  rate.  The  family 
would  not  be  enabled  to  subsist  by  devoting  themselves  en- 
tirely to  these  employments ;  but  their  subsistence  being 
already  secured  by  agriculture  or  some  other  adequately  com- 
pensated labor,  their  leisure  may  be  economized  by  such  sup- 
plementary tasks,  and  a  small  addition  be  thus  obtained  to 
their  slender  income.  The  Swiss,  a  frugal  and  industrious 

*  Laing's  Observations  on  Europe  in  1848  and  1849,  pp.  69,  70. 


236  DIFFERENCES    OF    WAGES. 

people,  are  noted  for  having  carried  these  home  manufactures 
to  a  great  extent,  and  for  maintaining  them  against  the  for- 
midable competition  of  British  fuel,  capital,  and  machinery. 

A  similar  case  is  presented  in  the  wages  of  female  labor, 
which  are  usually  much  lower  than  those  of  males.  The  rea- 
son is,  that  comparatively  few  women  are  solely  dependent 
upon  what  they  can  earn  for  themselves ;  most  of  them  have 
a  husband,  father,  or  brother  by  whom  they  are  supported. 
Being  fed  from  other  sources,  they  can  afford  to  perform  at  a 
very  low  price  the  few  tasks  that  are  deemed  appropriate  for 
their  sex.  So  many  of  them  are  willing  to  work  upon  these 
terms,  in  order  to  obtain,  not  a  livelihood,  but  the  means  of 
copying  a  new  fashion,  or  of  purchasing  a  coveted  article  of 
furniture  or  a  bit  of  finery,  that  wages  in  their  whole  depart- 
ment of  industry  are  permanently  depreciated ;  and  the  few 
women  who  are  unfortunate  enough  to  be  thrown  wholly  upon 
the  fruits  of  their  own  industry  for  subsistence,  are  reduced  to 
great  straits.  Thus,  sewing  is  a  peculiarly  feminine  occupa- 
tion, and  is  therefore  more  inadequately  paid  than  any  other 
species  of  manual  labor.  Hood  attracted  the  attention  and 
sympathy  of  all  England  for  the  hard  fate  of  the  needlewomen 
of  London ;  and  novelists  have  woven  many  pathetic  fictions 
out  of  the  sorrows  of  governesses.  The  menial  services  of  fe- 
males are  better  paid,  in  America  at  least,  than  any  other 
species  of  woman's  industry ;  a  good  cook  sometimes  earns 
more  than  an  accomplished  teacher,  and  certainly  finds  it 
easier  to  obtain  employment.  The  meanness,  or,  as  most 
women  consider  it,  the  degrading  character,  of  the  employ- 
ment, must  be  compensated  by  high  wages. 


PROFITS.  237 

CHAPTER     XVI. 

THE    CIRCUMSTANCES    WHICH    DETERMINE    THE    RATE    OP    PROFITS. 

CAPITAL  being  amassed,  as  we  have  seen,  by  frugality  or 
abstinence,  Profits  are  the  reward  of  abstinence,  just  as  Wages 
are  the  remuneration  of  labor  and  Rent  is  the  compensation 
for  the  use  of  land.  Labor,  capital,  and  land  are  the  three  in- 
struments of  production ;  and  therefore  the  exchangeable  value 
of  everything  produced  is  resolvable  into  three  component 
parts,  —  Wages,  Profits,  and  Rent.  To  adopt  Adam  Smith's 
language,  "  In  every  society,  the  price  of  every  commodity 
finally  resolves  itself  into  some  one  or  other,  or  all,  of  these  three 
parts ;  and  in  every  improved  society,  all  the  three  enter,  more 
or  less,  as  component  parts,  into  the  price  of  the  far  greater 
part  of  commodities."  In  the  origin  of  society,  fertile  land 
being  abundant  or  equally  distributed,  so  that  there  is  no  mo- 
nopoly, Rent  does  not  exist,  and  the  whole  value  of  the  thing 
is  resolvable  into  Profits  and  Wages.  A  still  earlier  state  of 
things  is  conceivable,  though  very  seldom  exemplified,  where, 
no  capital  being  as  yet  amassed,  labor  is  the  sole  producing 
agent,  so  that  the  whole  value  consists  of  Wages,  or,  in  other 
words,  the  whole  produce  of  labor  belongs  to  the  laborer. 
When  children  pick  berries  in  a  bushy  pasture,  or  men  gather 
clams  on  the  sea-shore,  provided  they  use  no  implements  but 
their  hands,  the  whole  value  of  what  they  collect  is  their  own 
gain,  or  consists  exclusively  of  Wages ;  if  they  use  a  few 
tools,  such  as  baskets  and  spades,  a  very  small  portion  of  that 
value  must  be  accounted  Profits. 

But  under  ordinary  circumstances,  or  in  every  stage  of  soci- 
ety above  the  lowest  degree  of  barbarism,  all  three  of  these 
elements  concur  to  make  up  the  value  of  every  article  pro- 
duced. "  In  the  price  of  com,  for  example,"  says  Adam 
Smith,  "  one  part  pays  the  rent  of  the  landlord,  another  pays 
the  wages  or  maintenance  of  the  laborers  employed  in  produ- 
cing it,  and  the  third  pays  the  profit  of  the  farmer.  These  three 
parts  seem,  either  immediately  or  ultimately,  to  make  up  the 


238  PROFITS. 

whole  price  of  corn.  A  fourth  part,  it  may  perhaps  be  thought, 
is  necessary  for  replacing  the  stock  of  the  farmer,  or  for  com- 
pensating the  wear  and  tear  of  his  laboring  cattle  and  other 
instruments  of  husbandry.  But  it  must  be  considered  that  the 
price  of  any  instrument  of  husbandry,  such  as  a  laboring  horse, 
is  itself  made  up  of  the  same  three  parts,  —  the  Rent  of  the 
land  upon  which  he  is  reared,  the  Labor  of  tending  and  rearing 
him,  and  the  Profits  of  the  farmer  who  advances  both  the  Rent 
of  this  land  and  the  Wages  of  this  labor. 

"  As  any  particular  commodity  comes  to  be  more  manufac- 
tured, that  part  of  the  price  which  resolves  itself  into  Wages 
and  Profits  comes  to  be  greater  in  proportion  to  that  which 
resolves  itself  into  Rent  In  the  progress  of  the  manufacture, 
not  only  the  number  of  Profits  increase,  but  every  subsequent 
Profit  is  greater  than  the  foregoing  j  because  the  capital  from 
which  it  is  derived  must  always  be  greater.  The  capital  which 
employs  the  weavers,  for  example,  must  be  greater  than  that 
which  employs  the  spinners,  because  it  not  only  replaces  that 
capital  with  its  Profits,  but  pays,  besides,  the  Wages  of  the 
weavers ;  and  the  Profits  must  always  bear  some  proportion 
to  the  capital." 

Still  it  is  true,  in  the  last  analysis,  as  already  stated,  that  the 
creation  of  all  value  can  be  traced  to  labor  alone.  Capital  it- 
self is  created  by  labor,  and  may  be  called  consolidated  or 
invested  labor.  It  consists  of  the  economized  or  reserved  fruits 
of  previous  labor,  so  that  Profits  are  only  the  compensation  of 
former  industry,  just  as  Wages  are  the  compensation  of  pres- 
ent industry.  What  is  usually  called  Rent,  also,  is,  in  great 
part,  only  the  compensation  of  the  labor  and  capital  that  have 
previously  been  expended  upon  the  land,  and  so  closely  incor- 
porated with  it  that  the  original  and  the  acquired  properties  of 
the  soil  can  no  longer  be  distinguished  from  each  other.  The 
greater  part  of  what  is  popularly  termed  Rent,  then,  is  nothing 
but  Profit,  or,  in  other  words,  the  Wages  of  past  industry.  As 
to  Rent  properly  so  called,  or  the  compensation  for  the  original 
and  inherent  properties  of  the  soil,  it  is  not,  strictly  speaking, 
the  reward  of  an  agent  that  has  concurred  in  the  production, 
but  is  only  a  share,  appropriated  on  the  monopoly  principle, 
of  the  previously  created  value.  These  original  properties  of 
the  soil  are  the  free  gift  of  Nature  ;  like  the  air  and  the  light, 


PROFITS.  239 

they  cost  nothing  to  anybody.  But  as  they  are  not  inexhaust- 
ible in  amount,  —  at  least  in  localities  where  they  are  most 
needed,  —  they  are  appropriated  by  individuals,  and  through  the 
monopoly  thus  created,  a  tax  is  levied  upon  the  producers  of 
value.  Thus,  a  portion  of  the  value  of  every  article  of  wealth 
is  appropriated  to  paying  Rent  properly  so  called;  but  this 
portion  is  not  the  reward  of  any  personal  agency  that  has  con- 
curred in  the  production  of  wealth. 

But  when  Profit  is  spoken  of  as  the  third  component  part  of 
value,  there  is  an  ambiguity  in  the  meaning  of  the  word  which 
deserves  attention,  as  it  is  the  source  of  several  of  Mr.  Ricar- 
do's  paradoxes.  In  the  ultimate  distribution  of  the  price  or 
value,  the  whole  share  which  falls  to  the  capitalist  is  called 
Profit  by  Ricardo ;  but  this  includes  the  replacement  of  the 
capital  which  he  originally  vested  in  the  undertaking,  as  well 
as  that  enlargement  of  this  capital  in  the  process  of  production 
which  alone  is  usually  denominated  Profit.  What  this  econo- 
mist calls  Wages,  also,  is  only  the  share  or  proportion  of  the 
finished  product  which  is  received  by  the  laborer ;  as  what  he 
terms  Profit  is  the  share  or  proportion  of  the  same  product 
which  accrues  to  the  capitalist.  Thus,  Rent  being  a  fixed 
sum,  to  be  first  deducted  from  the  total  value,  without  any  ref- 
erence to  the  comparative  amount  of  Wages  and  Profits, 
what  remains  after  this  deduction  is  to  be  divided  between  the 
laborer  and  the  capitalist.  Hence  Mr.  Ricardo  was  led  to  af- 
firm, that  "  nothing  can  affect  profits  but  a  rise  of  wages " ; 
that  "  whatever  raises  the  wages  of  labor  lowers  the  profit  of 
stock " ;  and  that,  "  as  the  wages  of  labor  fall,  the  profits  of 
stock  rise."  Summing  up  the  whole  doctrine  in  one  theorem, 
he  maintains  that  high  wages  and  high  profits  are  incompat- 
ible, since  whatever  is  added  to  the  one  must  be  taken  from 
the  other.  Having  sliced  off  (say)  one  third  of  the  apple  for 
Rent,  he  proposes  to  divide  the  remainder  into  two  parts,  giv- 
ing the  name  of  Wages  to  the  one,  and  of  Profits  to  the 
other ;  and  if  his  nomenclature  is  correct,  the  truth  of  his  doc- 
trine is  self-evident.  When  a  given  quantity  is  to  be  divided 
into  only  two  parts,  it  is  manifest  that  either  one  of  these  parts 
can  be  enlarged  only  at  the  expense  of  the  other ;  they  must 
vary  in  the  inverse  ratio  of  each  other. 

But  few  words  are  needed  to  expose  this  paradox.     When 


240  PROFITS. 

words  are  taken  in  their  ordinary  acceptation,  it  is  certain  that 
high  wages  and  high  profits  often  go  together,  and  tend  to 
produce  each  other.  The  rates  of  both  are  considerably  higher 
in  the  United  States  than  in  Great  Britain;  both  are  much 
higher  in  California  than  in  New  York.  When  a  capitalist  is 
making  large  profits,  he  is  eager  to  extent  his  business,  to  em- 
ploy more  hands,  and  consequently  he  offers  higher  wages.  A 
fall  in  wages  is  symptomatic  of  a  decline  in  business,  and  a 
general  depreciation  of  profits. 

But  it  should  be  distinctly  understood,  that  we  here  mean 
by  wages,  not  the  proportion  of  the  finished  product  that  falls 
to  the  laborer,  but  the  amount^  the  quantity  and  quality,  of  the 
commodities  which  he  can  purchase  with  the  results  of  his 
day's  labor.  If  a  journeyman  carpenter  is  able  to  buy  one 
fourth  of  a  barrel  of  flour  with  his  day's  wages,  while  a  seam- 
stress can  obtain  only  one  tenth  of  a  barrel  with  hers,  then  the 
wages  of  the  former  are  two  and  a  half  times  greater  than 
those  of  the  latter ;  and  this  would  be  true,  though  the  car- 
penter received  only  80  per  cent  of  what  his  day's  work  sold 
for,  while  the  seamstress  was  paid  90  per  cent  of  the  value  of 
hers.  In  like  manner,  "  profits  are  not  measured  by  the  pro- 
portion which  they  bear  to  the  rate  of  wages,  but  by  the  pro- 
portion which  they  bear  to  the  capital  by  the  agency  of  which 
they  have  been  produced."  If  a  farmer,  to  borrow  Mr.  Mc- 
Culloch's  illustration,  employs  a  capital  amounting  to  1,000 
bushels  of  grain,  paying  700  of  it  for  wages,  and  300  for  seed 
and  other  expenses,  then,  if  the  return  at  the  end  of  the  season 
be  1,200  bushels,  his  profit  is  200  bushels,  and  his  rate  of  profit 
is  20  per  cent.  Mr.  Ricardo  would  say,  that  the  total  product, 
1,200  bushels,  is  divided  into  profits  and  wages  in  the  propor- 
tion of  5  to  7,  inasmuch  as  the  laborers  received  seven  twelfths 
of  it,  and  the  capitalist  only  five  twelfths ;  —  a  doctrine  which 
is  correct  as  he  understands  it,  but  which  is  calculated  only  to 
mislead,  if  words  are  taken  in  their  ordinary  meaning. 

Several  things  are  usually  confounded  under  the  name  of 
Profit,  which  must  be  clearly  distinguished  from  each  other  be- 
fore we  can  gain  a  clear  view  of  the  circumstances  on  which 
the  rate  of  Profit,  at  any  given  time  and  place,  depends.  The 
general  principle  is,  that  Profits  tend  to  an  equality  in  all  em- 
ployments and  in  all  localities.  I  do  not  say  that  they  are 


PROFITS.  241 

equal,  or  that  they  must  become  equal ;  but  an  equalizing  pro- 
cess is  constantly  going  on ;  for  if  the  gains  in  one  department 
of  enterprise  are  notoriously  above  the  average,  —  if  it  is  even 
suspected  by  a  multitude  of  sharp-sighted  observers,  who  are 
on  the  looJtout  for  such  opportunities,  that  they  exceed  the 
average,  —  more  capital  is  at  once  attracted  into  the  employ- 
ment, till,  by  the  competition  of  the  capitalists  with  each  other, 
the  rate  of  Profit  is  reduced  to  the  common  standard  in  other 
enterprises. 

But  though  Profits  tend  to  an  equality  in  different  employ- 
ments, it  is  equally  certain  that  there  is  a  great  seeming  in- 
equality in  them,  most  of  which  can  be  readily  explained  by  a 
reference  to  the  several  really  distinct  elements  which  are 
usually  confounded  under  the  general  name  of  Profits.  Thus, 
among  those  who  superintend  the  application  of  capital,  —  en- 
trepreneurs the  French  call  them,  managers  is  the  nearest  Eng- 
lish appellation,  for  they  are  not  always  the  owners  of  the 
capital  which  they  manage,  —  there  is  every  degree  of  skill, 
enterprise,  and  intelligence ;  the  gains  vary,  of  course,  in  pro- 
portion as  these  faculties  are  exercised.  The  prudent  and 
sagacious  merchant  makes  a  fortune  out  of  the  very  business 
from  which  a  dozen  of  his  competitors  may  retire  as  bank- 
rupts. Only  those  who  are  successful  continue  in  the  busi- 
ness for  a  long  time ;  and  the  average  of  the  gains  of  such 
persons  is  found  greatly  to  exceed  the  ordinary  rate  of  Profits. 
Obviously,  however,  their  gains  are  not  all  to  be  reckoned  as 
Profits,  strictly  so  called  ;  a  large  portion  of  them  are  to  be  con- 
sidered rather  as  the  Wages  of  labor,  or  as  the  salary  paid  to 
an  unusually  skilful  person  for  managing  the  concern.  This 
portion  —  the  wages  of  management  —  being  deducted  from 
their  total  gains,  it  is  only  the  remainder  which  can  properly 
be  regarded  as  Profit,  and  its  rate  compared  with  the  rate  of 
Profits  in  other  employments,  with  which  it  will  be  found  to 
agree.  These  wages  for  skilful  management  often  rise  to  a 
very  high  point ;  some  of  the  manufacturing  corporations  in 
Massachusetts  have  found  it  for  their  advantage  to  pay  to 
their  general  agent  or  manager  a  higher  salary  than  the  gov- 
ernment of  the  United  States  paid  to  its  Minister  to  Great 
Britain,  or  than  it  now  pays  to  the  Chief  Justice  of  our  Su- 
preme Court.  If  this  person,  instead  of  acting  as  an  agent  for 
21 


242  PROFITS. 

others,  should  enter  into  business  on  his  own  account,  and 
trade  with  his  own  capital,  we  ought  to  subtract  $10,000 
a  year  from  his  annual  gains,  before  those  gains  are  con- 
sidered as  any  indication  of  the  general  rate  of  profit  in  his 
business. 

Again,  the  risk  incurred  varies  much  in  different  employ- 
ments. If,  in  a  particular  business,  three  ventures  out  of  four 
fail  altogether,  or  result  in  a  loss,  the  gains  of  the  fourth  ven- 
ture, on  an  average,  must  be  high  enough  to  compensate  for 
all  these  losses,  and  to  afford  at  least  the  ordinary  rate  of  profit 
for  the  capital  required  during  all  the  time  which  is  consumed 
by  all  four  ventures.  The  gains  of  the  slave-trade  between  the 
coast  of  Africa  and  Brazil  are  so  great,  that  if  three  ships  out 
of  four  are  captured  and  condemned,  with  all  their  slaves  on 
board,  the  profit  on  the  return  cargo  of  the  fourth  ship  is  large 
enough  to  make  the  business  a  lucrative  one  to  the  merchant. 
The  true  rate  of  profit,  then,  must  be  calculated  only  after  a 
large  deduction  is  made  from  the  total  gains  as  an  insurance 
against  total  loss. 

But  here  another  element  comes  in  to  modify  our  calcula- 
tions,—  an  element  already  once  mentioned  as  "the  lottery 
principle  in  human  nature."  So  much  does  the  prospect  of 
splendid  gains  outweigh,  in  the  estimation  of  sanguine  and 
adventurous  persons,  the  chances  of  loss,  that  an  undue  pro- 
portion of  capital  is  attracted  into  some  very  uncertain  employ- 
ments, and  the  rate  of  profit  in  them  is  consequently  reduced  to 
a  very  low  point,  —  often,  indeed,  to  nothing  or  less  than  noth- 
ing. There  is  no  doubt  that  the  average  gains  in  a  trade  in 
which  large  fortunes  may  be  made,  —  in  our  own  flour-trade, 
for  instance,  or  in  California  mining,  —  "  are  lower  than  those 
in  which  gains  are  slow,  though  comparatively  sure,  and  in 
which  nothing  is  to  be  ultimately  hoped  for  beyond  a  compe- 
tency. In  such  points  as  this,  much  depends  on  the  characters 
of  nations,  according  as  they  partake  more  or  less  of  the  adven- 
turous, or,  as  it  is  called  when  the  intention  is  to  blame  it,  the 
gambling  spirit.  This  spirit  is  much  stronger  in  the  United 
States  than  in  Great  Britain ;  and  in  Great  Britain  than  in 
any  country  on  the  Continent  of  Europe.  In  some  Continen- 
tal countries,  the  tendency  is  so  much  the  reverse,  that  safe 
and  quiet  employments  probably  yield  a  less  average  profit  to 


PROFITS.  243 

the  capital  engaged  in  them  than  those  which,  at  the  price  of 
greater  hazards,  offer  greater  gains."  * 

The  moral  character  of  individuals  —  or,  at  any  rate,  the 
estimation  in  which  they  are  held  in  the  community  —  is 
affected  by  the  comparative  prevalency  of  the  gambling  spirit. 
Here,  the  standard  phrase  for  a  "  failure,"  or  an  act  of  bank- 
ruptcy, is  "  misfortune  in  business  " ;  —  that  is,  fortune  only  is 
blamed,  the  individual  is  pitied,  and  the  sympathy  of  his  com- 
panions and  former  rivals  helps  him  to  try  again.  The  reason 
why  the  act  is  so  leniently  viewed  is,  that  it  is  so  frequent ;  no 
one  can  conscientiously  blame  his  neighbor  for  what  is  so  likely 
to  happen  to  himself,  —  for  what,  perchance,  has  happened  to 
himself  more  than  once.  I  have  heard  it  estimated  on  good 
authority,  that  in  Boston,  where  the  estimate  of  commercial 
honor  is  certainly  as  high  as  in  any  city  of  the  United  States, 
at  least  two  thirds  of  the  young  men  who  commence  business 
on  their  own  account  fail  in  the  course  of  the  first  five  years. 
No  one  reproaches  them  for  this  fact ;  for  not  a  few  even  of  the 
wealthy  men  of  the  city  remember  their  own  two  or  three  un- 
successful trials  before  they  finally  acquired  a  fortune.  Still, 
in  estimating  the  profits  of  trade  as  compared  with  those  of 
agriculture,  the  professions,  and  the  mechanic  arts,  the  number 
and  amount  of  such  failures  must  be  taken  into  view,  or  our 
calculations  will  be  very  wide  of  the  truth.  The  prevalence 
of  this  speculating  or  gambling  spirit  is  undoubtedly  one  of 
the  reasons  why  the  rate  of  interest  in  this  country  continues 
so  high  ;  lenders  are  affected  with  it  as  well  as  borrowers,  and 
will  incur  great  hazards  when  tempted  by  usurious  rates. 

In  England,  bankruptcy  is  a  more  serious  matter.  The 
bankrupt  not  only  loses  credit ;  he  also,  to  a  great  extent,  loses 
caste.  He  is  a  dishonored  man,  whose  sense  of  personal  deg- 
radation is  not  infrequently  so  keen  as  to  drive  him  to  suicide. 
Sidney  Smith  wittily  remarks,  that  an  Englishman's  idea  of 
Paradise  is  a  place  where  people  always  pay  their  debts. 
Hence  the  opprobrium  incurred  by  our  repudiating  States  was 
so  much  greater  in  England  than  in  this  country,  and  was  ex- 
pressed with  so  much  bitterness  as  absolutely  to  goad  and 
sting  the  defaulters  into  a  sense  of  the  heinousness  of  their  act, 


*  J.  S.  Mill's  Political  Economy,  Vol.  I.  p.  489. 


244  PROFITS. 

and  an  attempt  to  retrieve  their  reputation.  There  was  a  time 
when  a  Mississippian  or  a  Pennsylvanian  in  London  ran  great 
risk  of  being  treated  as  roughly  as  General  Haynau  was  in 
Barclay's  brewery.  And  yet,  serious  and  wholly  indefensible 
as  was  the  breach  of  faith  on  the  part  of  the  defaulting  States, 
the  complaints  of  the  English  bond-holders  were  exaggerated 
and  unreasonable.  They  knowingly  incurred  a  greater  risk, 
for  the  sake  of  obtaining  a  higher  interest ;  they  deliberately 
preferred  investment  at  considerable  hazard  in  American  funds 
at  six  per  cent,  to  a  perfectly  safe  investment  in  English  gov- 
ernment funds  at  three  per  cent,  and  therefore  had  compara- 
tively little  ground  for  complaint  when  a  certain  portion  of 
their  hazardous  investment  turned  out  unfavorably.  Most  of 
the  American  States  redeemed  all  their  obligations  without 
delay ;  some  others  were  unable  for  a  time  to  pay  the  interest, 
but  ultimately  redeemed  their  credit  by  paying  off  the  arrears  ; 
two  or  three  others  were  hopelessly  bankrupt.  Considered  as 
one  transaction,  and  on  purely  commercial  principles,  the  total 
investment  of  English  funds  in  American  stocks  was  a  suc- 
cessful enterprise ;  the  bond-holders  obtained  more  than  they 
would  have  received  from  an  equivalent  investment  in  the 
English  national  debt. 

In  France,  the  lot  of  the  bankrupt  is  still  more  severe ;  he 
not  only  loses  his  social  position,  but  the  law  prevents  him 
from  engaging  in  any  other  business  on  his  own  account  till 
he  has  redeemed  his  outstanding  obligations. 

I  have  dwelt  at  length  upon  these  circumstances  affecting 
the  rate  of  profits,  because  they  illustrate  the  principle  already 
stated,  that  the  theory  of  Political  Economy  is  but  an  exposi- 
tion of  human  nature  as  it  appears  when  engaged  in  the  pur- 
suit of  wealth.  The  rate  of  profits  varies  according  to  the 
opinions,  and  habits  of  mind  and  action,  of  those  who  apply 
capital  to  productive  uses.  The  money-getting  propensity  is 
but  one  tendency  or  phasis  of  human  nature,  and  it  is  con- 
stantly modified  and  controlled  by  the  other  passions  and  hab- 
its of  men,  with  which  it  is  blended,  and  among  which  it  is  by 
no  means  the  strongest. 

Another  illustration  of  this  general  principle  is  found  in  a 
circumstance  just  alluded  to,  —  the  extraordinary  fluctuations 
of  the  grain  and  flour  market  in  this  country,  —  fluctuations 


PROFITS.  245 

which  are  so  great  and  frequent  as  to  put  all  calculation  at  de- 
fiance, and  to  make  the  gains  of  the  dealers  nearly  as  uncertain 
as  the  chance  of  drawing  a  prize  in  a  lottery.  As  the  results 
of  successful  speculation  in  this  branch  are  very  brilliant,  and 
as  bankruptcy  is  no  disgrace,  the  business  is  probably  more 
overdone  —  that  is,  the  average  rate  of  profit  is  lower  —  than 
in  any  other  enterprise  whatsoever.  Flour  may  be  five  dollars 
a  barrel  in  New  York  at  the  beginning  of  the  season,  may  rise 
to  twelve  dollars  in  the  course  of  the  summer,  and  fall  even 
below  its  starting-point  when  the  next  crop  comes  in.  The 
effect  of  such  changes  as  these  on  the  business  of  a  dealer  who 
has  a  stock  of  a  quarter  of  a  million  of  barrels  at  a  time  may 
be  easily  seen.  He  may  literally  gain  or  lose  one  or  two  mil- 
lions of  dollars  in  one  season.  How  are  such  fluctuations  pos- 
sible ?  At  the  first  sight,  it  would  appear  that  the  price  of 
bread-stuffs  would  be  the  most  stable  of  all  prices.  The  quan- 
tity needed,  the  number  of  mouths  to  be  satisfied  with  food, 
varies  by  a  fixed  and  well-known  law  of  increase  from  year  to 
year.  The  average  crop  over  a  country  so  extensive  as  this 
varies  but  little ;  a  bad  harvest  in  one  State  is  compensated 
by  an  unusually  good  one  in  another.  And  should  there  be 
any  marked  deficiency  or  excess,  foreign  commerce  stands 
ready,  as  usual,  to  equalize  the  market  by  distributing  the  ag- 
gregate product  uniformly  where  it  is  most  needed. 

But  the  vast  quantity  of  the  article  which  is  produced  and 
consumed  every  year,  and  the  fact  that  it  is  also  an  article  of 
prime  necessity  for  all  classes  of  people,  introduce  a  new  ele- 
ment into  the  calculation.  The  hopes  and  fears  of  men  are 
strongly  excited  in  relation  to  a  product  on  which  not  merely 
comfort,  but  life,  depends,  and  the  use  of  which  is  absolutely 
universal.  Its  price  rises  and  falls,  not  merely  in  proportion 
to  the  deficiency  or  excess  of  the  crop,  but  to  the  alarm  and 
the  spirit  of  speculation  which  are  excited  by  that  deficiency 
or  excess.  A  failure  of  one  sixth  of  the  crop,  instead  of  raising 
the  value  in  the  market  only  in  that  proportion,  will  often 
double  the  price  ;  a  surplus  of  not  more  than  an  eighth  of  the 
average  annual  harvest  may  sink  the  price  below  the  actual 
cost  of  production.  A  mere  rumor  of  an  apprehended  partial 
failure  of  the  crop  in  England  has  power  to  raise  the  price  of 
grain  and  flour  from  five  to  twenty  per  cent  on  the  banks  of 
21* 


246  PROFITS. 

the  Ohio.  Here,  obviously,  a  correct  statement  of  a  law  of 
Political  Economy  is  a  general  fact  in  the  science  of  human 
nature,  a  law  of  which  we  must  take  cognizance  in  the  philos- 
ophy of  the  human  mind.  The  sensitiveness  and  excitability 
of  the  American  character  give  peculiar  prominence  to  the 
operation  of  such  laws  within  our  nearest  range  of  observa- 
tion. 

"  What  Mr.  Mill  calls  "  the  perpetual  overflow  of  capital  into 
colonies  or  foreign  countries,  to  seek  higher  profits  than  can  be 
obtained  at  home,"  is  certainly  a  powerful  agent  in  equalizing 
the  rates  of  profit  in  different  lands.  But  that  it  is  not  so  effi- 
cient for  this  purpose  as  we  might  be  tempted  at  first  thought 
to  imagine,  appears  from  the  notorious  fact,  that  the  rate  of 
interest  for  money  is  twice  as  high  here  as  in  Great  Britain. 
This  difference  of  rate  would  be  greater  than  it  is,  if  British 
capital  were  not  occasionally  sent  hither  in  large  amounts. 
But  why  is  not  the  migration  sufficient  to  equalize  the  rates 
at  once,  since  every  man  would  prefer  to  receive  six,  rather 
than  three,  per  cent  for  his  money  ?  Several  answers  may  be 
given  to  this  question.  In  the  first  place,  the  capitalist  is  not 
often  willing  to  emigrate  along  with  his  capital.  He  is  bound 
to  his  native  soil  by  many  ties  of  feeling  and  interest,  which 
he  cannot  easily  sever,  and  which,  being  at  any  rate  in  easy 
circumstances,  he  is  under  no  strong  temptation  to  break.  He 
must  be  separated  from  his  property,  then,  and  the  distance  of 
the  place  of  investment,  other  things  being  equal,  enhances  the 
risk ;  no  one  likes  to  trust  his  capital  in  operations  that  he  can- 
not oversee,  to  individuals  of  whom  he  knows  but  little,  or  to 
places  where  it  will  be  controlled  by  laws  and  institutions  dif- 
fering from  those  with  which  he  is  familiar.  War  may  possi- 
bly break  out  between  the  two  countries,  or  their  peaceful 
relations  be  so  far  disturbed,  that  the  profits  cannot  be  remitted 
with  regularity,  or  perhaps  the  principal  itself  may  be  lost. 
Lastly,  the  sentiment  from  which  no  man  is  entirely  free,  —  a 
sentiment  which  may  be  dignified  by  the  name  of  patriotism, 
or  branded  as  national  prejudice,  —  prevents  the  credit  of  for- 
eigners from  being  fairly  estimated.  Public  affairs  may  be 
more  widely  and  accurately  known  than  private  enterprises ; 
foreigners,  therefore,  usually  prefer  government  stocks  to  other 
means  of  investment.  Next  to  these,  chartered  companies, 


PROFITS.  247 

whose  transactions  are  large  and  of  a  public  character,  enjoy 
a  preference. 

But  on  the  whole,  capital  is  every  day  assuming  more  of  a 
cosmopolitan  character,  and  the  time  when  the  rates  of  interest 
will  become  nearly  equal  in  all  commercial  countries  cannot 
be  far  distant.  "  The  inequality  in  the  rate  of  profit  through- 
out the  civilized  world,"  says  Mr.  Senior,  "  is  much  less  than 
the  inequality  of  wages.  And  as  the  general  progress  of  im- 
provement tends  more  and  more  to  equalize  the  advantages 
possessed  by  different  countries  in  government  and  habits,  and 
even  in  salubrity  of  climate,  the  existing  inequalities  of  profits 
are  likely  to  diminish." 

Deducting  compensation  for  risk  and  the  wages  of  manage- 
ment, Mr.  J.  S.  Mill  considers  that  the  rate  of  profits  strictly 
so  called  "  is  measured  by  the  current  rate  of  interest  on  the 
best  security;  such  security  as  precludes  any  appreciable 
chance  of  losing  the  principal."  If  he  means  that  the  current 
rate  of  profits  in  the  narrowest  sense  of  that  term  is  identical 
with  the  current  rate  of  interest,  the  proposition  may  be 
doubted.  He  who  superintends  the  employment  of  his  own 
capital  expects  to  gain  much  more  than  the  rate  of  interest ; 
and  the  whole  of  this  excess  can  hardly  be  attributed  to  the 
two  elements  that  have  been  mentioned.  The  hazard,  in  the 
estimation  of  the  capitalist,  cannot  be  great,  or  he  would  not 
encounter  it,  as  he  has  a  choice  among  different  modes  of  em- 
ploying capital ;  or  if  there  be  an  extra  risk,  it  is  balanced  by 
the  chance  of  an  extra  profit.  And  though  the  wages  of  man- 
agement, as  we  have  seen,  may  sometimes  be  very  high,  it 
should  be  remembered,  that,  if  great  skill,  enterprise,  and  sa- 
gacity are  needed  for  the  successful  use  of  capital,  a  command 
of  capital  is  equally  necessary  to  give  full  scope  to  these  high 
qualities  of  character  and  intellect ;  and  the  joint  effect  is  prop- 
erly divisible  between  the  two  factors.  Still,  as  the  rate  of 
profit  unquestionably  varies  proportionally  with  the  current 
rate  of  interest,  though  exceeding  it  by  an  indefinable  amount, 
we  may  take  the  latter  as  a  measure  and  type  of  the  former, 
and  investigate  the  causes  which  affect  equally  the  rates  of 
both. 

In  English  systems  of  Political  Economy,  the  theory  of  the 
circumstances  which  determine  the  average  rate  of  profit,  as 


248  PROFITS. 

well  as  the  doctrine  respecting  the  average  rate  of  Wages,  is  a 
deduction  from  the  theories  of  Malthus  and  Ricardo  respecting 
population  and  rent.  Indeed,  ever  since  Ricardo's  time,  it  has 
been  the  ambition  of  English  writers  upon  the  subject  to  erect 
Political  Economy  into  the  rank  of  a  deductive  science ;  —  to 
begin  with  a  few  postulates  or  universally  recognized  facts  ;  to 
trace  these  to  their  consequences,  under  the  law  of  competi- 
tion, by  a  course  of  abstract  reasoning ;  and  to  make  the  re- 
sults thus  obtained  square  with  observed  facts  by  the  method 
of  exhaustions,  eliminating,  evading,  or  explaining  away  all 
the  phenomena  that  do  not  coincide  with  the  theory.  This 
method  has  elevated  some  startling  paradoxes  into  the  dignity 
of  first  principles  of  the  science ;  he  who  does  not  possess  the 
key  to  them,  or  is  incapable  of  explaining  them  in  what  is 
claimed  to  be  the  true  scientific  method,  that  is,  by  reference 
to  the  very  few  and  simple  facts  which  alone  are  admitted  to 
be  the  proper  data  of  the  science,  is  held  to  be  unworthy  of 
mingling  in  the  discussion.  He  is  ruled  out  of  court,  on  the 
ground  of  ignorance.  Hence  an  offensive  tone  of  assumption 
and  dogmatism  has  crept  into  the  writings  of  the  expounders 
of  the  system,  and  the  breach  between  scientific  economists 
and  practical  business  men  is  unnecessarily  and  injuriously 
widened. 

Some  of  these  paradoxes  we  have  already  reviewed,  and 
traced  them  to  their  origin  in  the  arbitrary  assumptions,  or  arbi- 
trarily limited  definitions,  which  have  been  made  the  basis  of 
the  science.  Thus,  it  is  assumed  that  the  growth  of  the  popu- 
lation everywhere  tends  to  outrun  the  increase  of  the  means  of 
subsistence ;  and  the  inference  is,  that  the  natural  or  necessary 
standard  of  wages  is  the  smallest  sum  that  will  furnish  the 
laborer  with  what  his  class  in  society  regard  as  the  necessaries 
of  life.  It  is  assumed  that  the  most  fertile  soils  are  always  the 
first  to  be  cultivated,  and  that  the  population,  as  it  increases, 
remains  on  the  same  spot ;  and  the  inferences  are,  that  addi- 
tional food  is  always  obtained  at  a  disadvantage,  that  addi- 
tional capital  can  never  be  applied  to  the  land  but  with 
constantly  diminishing  returns ;  and  hence,  that  the  increase 
of  the  population  anywhere,  and  under  all  circum stances,  is  a 
great  evil ;  —  a  paradox  of  the  most  startling  kind,  inasmuch 
as  the  common  sense  of  mankind  has  everywhere  taken  it  for 


PROFITS.  249 

granted,  that  the  rapid  growth  of  the  population  is  one  of  the 
most  unfailing  indications  of  great  prosperity.  Profits  are 
arbitrarily  defined  to  be,  what  remains  to  the  capitalist  from 
a  division  of  the  whole  value  created  between  him  and  the 
laborer,  rent  having  been  previously  deducted ;  and  the  infer- 
ence is,  that  profits  and  wages  vary  in  inverse  proportion,  or 
that  high  wages  and  high  profits  are  incompatible  ;  whereas  it 
is  a  matter  of  the  commonest  observation,  that  they  vary  in 
direct  proportion,  high  wages  being  incompatible  with  low 
profits.  It  is  assumed  that  individuals  are  always  the  best 
judges  of  their  own  interests,  that  nations  are  composed  only 
of  individuals,  and  that  individual  and  national  interests  are 
identical;  and  it  is  inferred,  that,  as  it  would  be  unwise  to 
place  restrictions  upon  trade  between  individuals,  so  it  would 
be  impolitic  to  put  any  fetters  upon  international  commerce ; 
but  that  a  little  kingdom  like  Denmark  should  be  exposed,  in 
every  branch  of  her  industry,  to  the  overpowering  competition 
of  the  immense  capital  and  other  resources  of  a  great  nation 
like  England.  Yet  it  is  certain,  as  Mr.  Rea  remarks,  that 
individual  and  national  interests  are  not  always  identical,  be- 
cause individuals  often  grow  rich  by  the  acquisition  of  wealth 
previously  existing,  but  nations  by  the  creation  of  wealth  that 
did  not  before  exist ;  and  we  have  already  seen,  (pp.  36  -  38,) 
that  private  persons  may  be  impoverished  by  the  conversion 
of  artificial  into  natural  wealth,  though  nations  are  always 
benefited  by  this  process.  For  the  case  of  Denmark,  I  bor- 
row the  language  of  Mr.  Laing,  an  English  Political  Econo- 
mist who  has  partly  shaken  off  the  trammels  of  this  system, 
and  prefers  to  reason  from  facts  rather  than  assumptions. 

"  Denmark  has  no  metals  or  minerals,  no  fire  power,  no 
water  power,  no  products  or  capabilities  for  becoming  a  man- 
ufacturing country  supplying  foreign  consumers.  She  has  no 
harbors  on  the  North  Sea.  Her  navigation  is  naturally  con- 
fined to  the  Baltic.  Her  commerce  is  naturally  confined  to 
the  home  consumpt  of  the  necessaries  and  luxuries  of  civilized 
life,  which  the  export  of  her  corn  and  other  agricultural  prod- 
ucts enables  her  to  import  and  consume.  She  stands  alone  in 
her  corner  of  the  world,  exchanging  her  loaf  of  bread,  which 
she  can  spare,  for  articles  she  cannot  provide  for  herself,  but 
still  providing  for  herself  everything  she  can  by  her  own  indus- 


250  PROFITS. 

try.  This  is  no  unhappy  condition  either  for  an  individual  or 
a  nation.  This  home  industry  of  hers  is  protected  by  heavy 
import  duties  on  all  foreign  articles  which  could  compete  with 
her  own  manufactures,  and  these  are  avowedly  imposed,  not 
for  revenue,  for  which  a  lower  duty  would  be  more  productive, 
but  for  protection.  The  object  of  this  policy  of  the  Danish 
government  is  simply  to  secure  a  living  and  occupation  to  that 
portion  of  the  population  which  is  not  engaged  in  husbandry, 
and  which,  without  protective  duties  on  all  that  interferes  with 
their  branches  of  industry,  would  become  a  burden  on  the  rest 
of  the  community,  owing  to  the  natural  want  of  products  or 
capabilities  in  the  country  of  giving  employment  in  manufac- 
tures, commerce,  or  in  any  branch  of  industry  but  agriculture, 
and  the  few  arts  and  trades  connected  with  it.  This  protec- 
tive system  in  any  country,  and  under  any  circumstances, 
would  have  been  scoffed  at  a  few  years  ago  by  our  English 
Political  Economists,  as  contrary  to  all  sound  principle  ;  but  it 
wears  a  less  foolish  aspect  if  we  examine  it  closely,  and  with 
reference  to  the  physical  circumstances  which  impose  it  upon 
some  countries,  such  as  Denmark,  and  to  the  social  or  conven- 
tional circumstances  which  dispose  the  classes  the  most  distant 
and  most  opposed  to  each  other  in  general,  to  clamor  for  it  in 
our  own.  The  Danish  government  appears  to  have  adopted, 
and  always  acted  upon,  that  policy  which  the  physical  circum- 
stances of  the  country  —  namely,  the  natural  want  of  all  prod- 
ucts or  means  by  which  a  surplus  population  could  be  em- 
ployed in  manufactures  or  commerce  —  have  imposed  upon  it ; 
and  to  have  protected,  as  a  species  of  property,  the  skill  and 
labor  of  her  working  operative  classes  by  heavy  import  duties 
on  all  articles  that  interfered  with  their  industry ;  and  to  have 
protected  them,  also,  against  themselves,  that  is,  against  an 
accumulation  of  more  labor  and  skill  in  any  trade  than  the 
locality  required  and  could  subsist ;  and  to  have  protected  the 
landed  interest  and  their  laborers  by  a  free  export  of  their 
products." 

But  I  return  from  this  digression  to  a  consideration  of  the 
circumstances  that  determine  the  average  rate  of  profits.  The 
phenomenon  to  be  explained  by  any  theory  that  may  be 
broached  upon  this  subject,  is  the  gradual  but  sure  declension 
of  the  rate  of  profit  in  all  countries,  as  their  population  and 


PROFITS.  251 

wealth  are  augmented.  The  growth  of  national  opulence  re- 
sembles that  of  the  human  body.  It  is  most  rapid  in  infancy, 
the  body  usually  doubling  in  weight  during  the  first  year  of  its 
existence,  a  rate  of  increase  which  it  never  afterwards  equals. 
In  early  childhood,  the  growth  is  still  quick,  though  not  so 
rapid  as  at  first;  and  it  steadily  declines,  as  the  child  ap- 
proaches maturity,  till  at  last  it  reaches  its  stationary  point  in 
full  manhood,  when,  though  all  the  corporeal  powers  and  func- 
tions are  in  full  vigor  and  activity,  the  body  no  longer  increases 
either  in  stature  or  weight,  except  as  a  consequence  of  disease 
or  other  extraordinary  circum stances.  Adam  Smith  long  ago 
remarked,  that  in  a  new  colony,  which  is  "  more  understocked 
in  proportion  to  its  territory,  and  more  underpeopled  in  propor- 
tion to  the  extent  of  its  stock,  than  the  greater  part  of  other 
countries,"  profits  are  very  large,  and  the  rate  of  interest  is 
consequently  high.  "  As  the  colony  increases,  the  profits  of 
stock  gradually  diminish  "  ;  and  "  in  a  country  fully  stocked  in 
proportion  to  all  the  business  it  had  to  transact,  the  competi- 
tion would  everywhere  be  as  great,  and  consequently  the  ordi- 
nary profit  as  low,  as  possible." 

Thus,  in  California,  soon  after  its  cession  to  the  United 
States  and  the  discovery  of  its  gold-washings,  profits  rose  with 
unexampled  rapidity,  and  the  current  rate  of  interest  was  from 
thirty-six  to  forty-eight  per  cent  a  year.  These  extravagant 
rates,  however,  soon  began  to  decline,  and  they  are  now  not 
more  than  twice  as  high  as  in  New  York.  Similar  changes 
have  taken  place  in  Australia,  since  the  discovery  of  gold  in  its 
southern  region.  I  have  already  observed,  that  the  rate  of  in- 
terest in  England,  which  was  over  ten  per  cent  in  the  early 
part  of  the  sixteenth  century,  slowly  but  steadily  declined,  till 
it  reached  its  present  ordinary  rate  of  three  per  cent.  I  have 
also  cited  the  case  of  Holland,  which  seems  to  have  attained 
the  stationary  state  over  a  century  and  a  half  ago.  The  rate 
of  interest  there,  on  government  security,  had  then  fallen  to 
two  per  cent,  the  lowest  point  to  be  generally  established 
through  a  whole  country  that  is  known  in  the  history  of  com- 
merce. For  fifty  years  before  this  stage  was  attained,  —  that 
is,  during  the  latter  half  of  the  seventeenth  century,  —  the 
Dutch  were  the  most  active  commercial  and  manufacturing 
power  in  the  world.  Their  colonies  were  scattered  over  both 


252  PROFITS. 

hemispheres,  and  their  sails  whitened  every  sea.  They  had 
almost  exclusive  control  of  the  carrying-trade,  and  the  Naviga- 
tion Laws  of  the  English  were  enacted  for  the  avowed  purpose 
of  wresting  a  portion  of  this  traffic  from  them.  They  alone, 
for  a  long  period,  contended  with  England  for  the  mastery  of 
the  seas ;  and  during  a  portion  of  this  time  victory  inclined  to 
their  flag.  Then  were  executed  those  gigantic  works  of  in- 
ternal improvement  which  rescued  Holland  permanently  from 
the  ocean,  converted  her  marshes  into  gardens,  and  made  her 
canals  the  highways  of  the  commerce  of  Europe.  Having 
touched  the  zenith  of  their  fortunes,  the  Dutch  did  not  begin 
to  decline,  but  simply  remained  stationary,  while  other  nations, 
England  especially,  have  in  their  turn  risen  to  be  masters  of 
the  commercial  world. 

And  the  same  cause  which  checked  the  progress  of  Holland, 
which  opposes  a  necessary  limit  to  the  growth  of  national  opu- 
lence, threatens  even  now  to  stay  the  course  of  English  pros- 
perity. There  are  the  same  symptoms  of  a  relaxation  of  the 
energies  of  the  system,  as  the  organs  become  distended  with 
over-abundant  wealth.  The  rate  of  interest  is  with  difficulty 
maintained  at  a  point  above  that  where  it  rested  in  Holland  a 
hundred  and  fifty  years  ago;  the  Bank  of  England  is  now 
often  driven  to  discount  private  paper  at  only  two  and  a  half 
per  cent.  But  for  the  overflow  of  English  capital  into  colonies 
and  foreign  countries,  and  for  a  commercial  crisis,  which  often 
sweeps  away  a  great  amount  of  capital  to  the  manifest  advan- 
tage of  what  is  left,  just  as  a  gush  of  blood  from  the  nose 
sometimes  relieves  a  patient  who  is  in  danger  of  apoplexy,  the 
tide  would  have  turned  in  Great  Britain  some  time  since,  leav- 
ing the  people  not  exhausted,  but  satiated.  During  the  last 
thirty  years,  the  English  have  thrown  away  capital  enough 
upon  South  American  and  Mexican  mines,  Spanish  and  Greek 
funds,  and  railroads,  to  serve  as  a  good  basis  for  the  opulence 
of  another  country  of  equal  population.  Through  the  stubborn 
perseverance  of  the  national  character,  the  productive  energies 
of  the  people  seem  to  have  outlived  the  motives  which  called 
them  into  being,  and  for  a  long  time  sustained  them  in  action. 

This  constant  downward  tendency  of  the  rate  of  profit  is  a 
phenomenon  to  be  explained,  for  it  is  the  opposite  of  the  issue 
that  we  were  prepared  to  expect.  As  capital  accumulates, 


PROFITS.  253 

experience  is  enlarged  and  skill  perfected ;  it  would  seem,  then, 
that  labor,  being  more  abundantly  supplied  with  all  the  means 
for  its  most  effectual  exercise,  would  be  most  successfully,  ap- 
plied, and  would  be  followed  by  the  largest  and  most  profitable 
results.  True,  the  prices  of  commodities  fall  as  the  cost  of 
their  production  is  diminished.  But  there  seems  to  be  no  rea- 
son why  they  should  fall  more  rapidly  than  the  cost  of  the  arti- 
cles decline ;  and  therefore  we  cannot  see,  at  the  first  glance, 
why  the  rate  of  profit  should  be  diminished,  —  why  it  should 
be  less  than  when  men  work  at  great  disadvantage,  under  all 
the  privations  and  difficulties  incident  to  the  attempt  to  found 
a  new  colony. 

Adam  Smith  ascribes  the  fall  of  profits  in  some  measure  to 
the  competition  of  capitalists.  "  When  the  stocks  of  many 
rich  merchants,"  he  says,  "  are  turned  into  the  same  trade, 
their  mutual  competition  naturally  tends  to  lower  its  profits ; 
and  when  there  is  a  like  increase  of  stock  in  all  the  different 
trades  carried  on  in  the  same  society,  the  same  competition 
must  produce  the  same  effect  in  them  all."  But  the  objection 
is  properly  made,  that  competition  can  tend  only  to  equalize 
the  profits  in  different  employments  and  different  places.  It 
can  make  the  profits  of  cotton-spinning  equal  to  those  in  the 
iron  manufacture,  and  can  reduce  the  gains  of  merchants  in 
New  York  to  a  level  with  those  in  Boston ;  but  it  supplies  no 
reason  why  the  average  rate  of  profit  in  all  employments,  and 
at  all  places,  should  be  depressed.  To  produce  this  effect,  there 
must  be  something  to  come  into  competition  with  capital  it- 
self, —  some  other  agent,  which  shall  render  industry  equally 
effective ;  and  we  have  no  such  agent,  and  cannot  even  con- 
ceive of  one. 

Mr.  Ricardo  and  his  followers  attempt  to  solve  the  problem 
by  reasoning  in  their  peculiar  manner  from  the  few  facts  which 
are  all  that  they  admit  as  data  in  the  science.  With  them,  as 
I  have  said,  the  doctrine  of  profits  is  a  deduction  from  the 
Malthusian  theories  of  population  and  rent.  The  value  of 
every  commodity  being  divisible  into  the  three  elements  of 
rent,  wages,  and  profits,  whatever  cause  tends  to  augment  the 
two  former,  or  even  to  increase  but  one  of  them  without  an 
equivalent  reduction  of  the  other,  must  certainly  lessen  the 
third  element,  which  is  all  that  remains  for  profit.  Such  a 
22 


254 


PROFITS. 


cause  is  found  in  the  necessity,  created  by  an  ever-increasing 
population,  of  constantly  having  recourse  to  inferior  soils,  and 
thereby  of  perpetually  augmenting  the  rent  of  the  lands  which 
were  previously  under  cultivation.  But  if  rent  is  increased, 
there  remains  a  smaller  portion  to  be  divided  between  wages 
and  profits.  Still  further ;  there  is  a  limit  to  the  depression  of 
wages,  but  there  is  none  to  the  fall  of  profits.  The  natural 
and  necessary  rate  of  wages,  according  to  these  theories,  as 
has  been  already  explained,  is  the  smallest  sum  that  will  sup- 
ply the  laborer  and  his  family  with  what  are  believed  to  be  the 
necessaries  of  life.  As  the  cost  of  food  is  increased,  therefore, 
by  the  necessity  of  cultivating  inferior  land,  the  expense  of 
supplying  the  laborer  with  food  is  also  increased,  and  his 
wages  must  rise.  The  portion  remaining  for  profit  is  thus 
diminished,  as  it  were,  at  both  ends ;  as  the  population  in- 
creases in  number,  from  the  value  of  every  commodity  a  con- 
stantly increasing  share  must  be  cut  off  for  rent,  and  another 
regularly  augmented  portion  must  be  deducted  for  wages. 
Obviously  but  a  small  portion,  and  that  perpetually  becoming 
less,  remains  for  profit.  "In  one  brief  formula,"  says  Mr. 
De  Quincey,  "  it  might  be  said  of  profits,  that  they  are  the  leav- 
ings of  wages ;  so  much  will  the  profit  be  upon  any  act  of  pro- 
duction, whether  agricultural  or  manufacturing,  as  the  wages 
upon  that  act  permit  to  be  left  behind." 

The  following  diagram  or  ocular  construction,  also  borrowed 
with  some  modification  from  Mr.  De  Quincey,  may  not  only 
make  this  clearer  to  the  reader,  but  may  illustrate  the  peculiar 
character  of  Ricardo's  reasoning,  —  the  strict,  logical  deduc- 
tion from  a  few  arbitrarily  assumed  premises,  little  or  no  re- 
gard being  paid  to  the  modifying  circumstances  in  a  case 
which  is  obviously  a  very  complicated  one. 


No.  I.  100  bushels  to 
the  acre. 

W 

P      '•       R'"             R"      '•        R' 

No.  II.  90  bushels  to 
the  acre. 

W 

W':                     P      :     R  '"              R" 

No.  III.  80  bushels  to 
the  acre. 

w 

W'W"1            P      :       R'" 

No.  IV.  70  bushels  to 
the  acre. 

w 

W'V>j   P 

Here  No.  I.,  the  upper  parallelogram,  represents  land  of  the 


PROFITS.  255 

first  quality,  yielding  100  bushels  to  the  acre.  No.  II.  repre- 
sents the  second  class  of  soils,  yielding  but  90  bushels  to  the 
acre,  and  required  for  tillage  as  soon  as  the  growing  popula- 
tion has  made  the  produce  of  No.  I.  insufficient  to  satisfy  the 
demand  for  food.  No.  III.  represents  the  third  class  of  soils, 
yielding  but  80  bushels  to  the  acre,  brought  under  cultivation 
under  the  same  pressure  continually  increasing.  No.  IV.  rep- 
resents the  poorest  quality  of  the  soil  that  is  cultivated,  yield- 
ing 70  bushels  to  the  acre,  or  only  enough  to  pay  the  ordinary 
wages  of  the  labor,  and  the  necessary  rate  of  profit  on  the  cap- 
ital required  for  its  cultivation,  and  therefore  yielding  no  sur- 
plus for  rent.  We  have  only  to  add,  that  W  expresses  the 
function  of  wages,  P  of  profit,  w',  w",  and  w"'  the  several  in- 
crements of  wages,  and  R',  R",  and  R'"  the  several  increments 
of  rent,  as  they  emerge  successively  under  the  series  of  agri- 
cultural expansions  rendered  necessary  by  the  constant  growth 
of  the  population. 

As  soon  as  No.  II.  is  called  into  use  by  the  increased  de- 
mand for  food,  the  increased  price  of  that  food  will  pay  ordi- 
nary profits  and  wages  for  the  cultivation  of  land  yielding  only 
90  bushels  an  acre;  and  therefore  R',  representing  10  bushels 
an  acre,  will  be  left  for  the  rent  of  No.  I.,  though  it  yielded  no 
rent  before  No.  II.  was  cultivated.  But  this  enhanced  price 
of  food  renders  necessary  also  an  advance  of  wages,  because 
the  wages  formerly  paid  were  barely  sufficient  to  purchase  the 
necessary  food  for  the  laborer's  family  at  the  old  price.  Hence 
this  increment  of  wages,  represented  by  w',  must  also  be  cut 
off  from  P,  which  is  at  the  same  time  lessened  by  the  deduc- 
tion of  R'.  When  a  further  increase  of  the  population  brings 
into  use  No.  III.,  yielding  only  80  bushels,  both  R'  and  R",  rep- 
resenting 20  bushels,  must  be  deducted  from  No.  I.,  and  R",  or 
10  bushels,  from  No.  II.,  for  rent.  So,  also,  w"  must  be  de- 
ducted for  a  further  rise  of  wages.  In  like  manner,  when  No., 
IV.  is  broken  up  for  tillage,  R',  R",  and  R'"  will  be  paid  for  rent 
on  the  three  classes  of  soils  of  a  higher  quality,  and  w',  w", 
and  w"'  will  be  the  successive  additions  to  the  original  rate,  W, 
of  wages.  So  long  as  No.  IV.  is  the  poorest  land  in  cultiva- 
tion, its  whole  produce  will  be  absorbed  in  the  payment  of 
profits  and  wages,  and  nothing  will  be  left  for  rent. 

The  preceding  diagram  is  constructed  only  to  show  the  sue- 


256  PROFITS. 

cessive  deductions  that  are  made  from  profits  to  pay  wages 
and  rent.  It  does  not  represent  the  whole  state  of  the  case, 
after  tillage  has  been  brought  down  to  No.  IV. ;  for  as  there 
can  be  but  one  rate  of  wages  at  the  same  time,  w',  w",  and 
w"',  or  the  successive  increments  of  wages,  must  be  deducted 
from  the  three  higher  classes  of  soils,  as  well  as  from  No.  IV. 
The  following  construction,  then,  shows  how  little  remains  for 
profits  after  No.  IV.  has  come  into  use. 


No.  I. 

W 

w,w,,w,,,:     p     :   „,„   :    E,,    :    E, 

No.  H. 

W 

W'W»';w/»      p      :    R///   :    R// 

No.  III. 

w 

ww>»'      P     ;   ,» 

No.  IV. 

w 

ww      P 

Here  P,  representing  profits,  extended  from  a  to  b  when 
only  No.  I.  was  in  cultivation,  but  reaches  only  from  c  to  d 
after  tillage  has  descended  to  No.  IV. 

This  diminution  of  the  rate  of  profits  must  go  on  indefi- 
nitely, so  long  as  the  increase  of  the  population  obliges  us  to 
have  recourse  to  soils  of  constantly  diminishing  fertility.  Rent 
at  the  same  time  will  be  proportionally  augmented ;  the  land- 
holder will  receive  not  only  a  larger  portion  of  the  total  prod- 
uct, but  the  price  per  bushel  of  the  whole  product  will  be  aug- 
mented. Wages,  however,  will  be  only  nominally  increased ; 
the  successive  increments,  w',  w",  and  w'",  cannot  be  more  than 
enough  to  pay  the  enhanced  price  of  food  which  caused  them. 
In  fact,  they  will  not  suffice  to  pay  the  new  price,  but  the 
laborer  will  submit  to  live  on  a  smaller  quantity  of  food,  or  on 
food  of  a  coarser  quality ;  for  while  food  is  becoming  dearer, 
the  constant  tendency  of  the  population  to  increase  is  adding 
to  the  competition  in  the  labor-market,  so  that  wages  cannot 
rise  in  full  proportion  to  the  higher  cost  of  food. 

Thus  far,  it  would  seem  that  the  new  rates  of  wages  and 
profits  would  be  established  only  in  agriculture,  where  alone  a 
necessity  for  them  appears  to  have  been  created.  But  a  little 
reflection  will  show  that  they  must  extend  equally  to  all  em- 
ployments of  industry  and  capital.  The  enhanced  price  of 
food  must  raise  wages  throughout  the  country ;  and  competi- 


PROFITS.  257 

tion  must  equalize  profits.  If  the  returns  for  the  employment 
of  capital  were  smaller  in  farming  than  in  commerce  and  man- 
ufactures, capital  would  be  diverted  from  agriculture  till  the 
balance  was  restored.  Furthermore,  the  increased  cost  of  the 
raw  material,  which  is  always  obtained  more  or  less  directly 
from  agriculture,  will  immediately  lessen  the  profits  of  the 
manufacturer ;  for  instance,  "  even  upon  shoes,"  as  De  Quin- 
cey  remarks,  "  there  will  be  a  small  increase  of  labor,  because 
the  raw  material  will  grow  a  little  dearer  as  hides  grow  dearer ; 
and  hides  will  grow  dearer  as  cattle  grow  dearer,  by  descend- 
ing upon  worse  pasture-lands." 

There  is  but  one  possible  check  upon  this  descent  of  agri- 
culture to  inferior  soils,  and  the  consequent  declension  of  prof- 
its, augmentation  of  the  price  of  food,  and  increase  of  rent. 
This  is  the  progress  of  agricultural  improvements,  by  means 
of  which  more  food  is  obtained  from  the  same  quantity  of  land, 
or  the  same  amount  of  food  is  procured  by  a  smaller  expendi- 
ture of  labor  and  capital.  In  this  way,  the  wants  of  an  in- 
creasing population  may  be  provided  for  without  the  necessity 
of  bringing  more  land  into  tillage,  or  of  applying  capital  with 
constantly  diminishing  returns.  But  this  check  cannot  have 
any  permanent  influence  ;  it  may  postpone,  but  cannot  finally 
avert,  the  consequences  of  a  steady  growth  of  the  population. 
Its  influence,  indeed,  is  self-limited;  for,  as  McCulloch  re- 
marks, "  the  rise  of  profits  consequent  to  every  invention,  by 
occasioning  a  greater  demand  for  labor,  gives  a  fresh  stimulus 
to  population ;  and  thus,  by  increasing  the  demand  for  food, 
again  inevitably  forces  the  cultivation  of  poorer  soils,  and 
raises  prices."  And  again,  "  from  the  operation  of  fixed  and 
permanent  causes,  the  increasing  sterility  of  the  soil  is  sure,  in 
the  long  run,  to  overmatch  the  improvements  already  made  in 
machinery  and  agriculture,  prices  experiencing  a  corresponding 
rise,  and  profits  a  corresponding  fall." 

It  only  remains  to  notice  a  corollary  from  this  theory,  in  re- 
spect to  the  different  manner  in  which  this  declension  of  the 
rate  of  profits  affects  the  comparative  value  of  commodities 
produced  in  great  part  by  Fixed  Capital,  and  of  those  pro- 
duced in  great  part  by  Circulating  Capital.  These  two  kinds 
of  capital  differ  chiefly  in  point  of  durability;  Circulating 
Capital  is  employed  for  the  most  part  in  the  payment  of  wages, 
22* 


258  PROFITS. 

and  is  very  soon  replaced  by  the  fruits  of  the  laborers'  indus- 
try. Fixed  Capital  consists  of  tools  and  machines,  varying  in 
their  degrees  of  durability,  though  all  are  consumed  and  re- 
placed much  more  slowly  than  the  various  elements  of  Circu- 
lating Capital.  According  as  Fixed  Capital  has  less  and  less 
of  durability,  so  far  it  approximates  the  separate  nature  of  Cir- 
culating Capital.  Some  commodities  are  almost  exclusively 
produced  by  the  expenditure  of  capital,  chiefly  of  Fixed  Cap- 
ital. Gunpowder,  for  instance,  to  avoid  the  hazard  of  human 
life,  is  manufactured  by  machinery  moved  by  water-power  in 
some  retired  place,  the  works  being  so  contrived  that  the  pro- 
cess is  continued  with  very  little  superintendence,  the  work- 
men visiting  the  place  only  occasionally,  to  bring  additional 
raw  material,  to  remove  the  finished  product,  and  to  make  a 
few  adjustments  of  the  machinery.  Boots  and  shoes,  on  the 
other  hand,  are  made  almost  entirely  by  the  immediate  labor 
of  man ;  machines  are  not  used  in  their  manufacture,  and  the 
workman  needs  but  few  and  simple  tools. 

Now,  a  fall  of  profits,  as  Mr.  Mill  remarks,  "  lowers  in  natu- 
ral value  the  things  into  which  profits  enter  in  a  greater  pro- 
portion than  the  average,  and  raises  those  into  which  they 
enter  in  a  less  proportion  than  the  average.  All  commodities 
in  the  production  of  which  machinery  bears  a  large  part,  espe- 
cially if  the  machinery  is  very  durable,  are  lowered  in  their 
relative  value  when  profits  fall ;  or,  what  is  equivalent,  other 
things  are  raised  in  value  relatively  to  them."  Recurring  to 
the  diagram,  we  see  that  wages  rise  while  profits  fall,  though 
not  in  the  same  proportion,  the  fall  of  profits,  owing  to  the 
deduction  of  rent,  being  more  rapid  than  the  rise  of  wages. 
For  a  double  reason,  then,  as  population  advances,  and  infe- 
rior soils  are  brought  into  cultivation,  gunpowder,  and  other 
articles  the  value  of  which  consists  mostly  of  profits,  fall  in 
price  when  compared  with  boots  and  shoes,  and  other  com- 
modities the  value  of  which  consists  chiefly  in  wages.  The 
elements  of  the  former  are  declining,  at  the  same  time  that  the 
elements  of  the  latter  are  rising,  in  comparative  value.  The 
result  is  otherwise  briefly  stated  by  Mr.  Mill  in  this  formula  :  — 
"  Every  fall  of  profits  lowers,  in  some  degree,  the  cost  value  of 
things  made  with  much  or  durable  machinery,  and  raises  that 
of  things  made  by  hand ;  and  every  rise  of  profits  does  the  re- 
verse.'' 


PROFITS.  259 

il 

This  is  a  brief  outline  of  Ricardo's  celebrated  theory  of  value 
in  relation  to  rent,  wages,  and  profits.  It  is  a  masterpiece  of 
abstract  reasoning,  imposing  from  its  scientific  pretensions,  the 
boldness  of  its  assumptions,  the  paradoxical  character  of  many 
of  its  results,  and  the  ingenuity  which  has  been  manifested  in 
explaining  these  paradoxes  and  reconciling  them  with  the  facts 
of  observation.  In  point  of  logic,  it  is  unexceptionable  ;  once 
admit  its  premises,  and  there  is  no  stopping  short  of  its  conclu- 
sions. We  may  accept  in  great  part  the  criticism  of  it  by  an 
eminent  French  economist,  J.  B.  Say.  "  It  is,"  he  remarks, 
"perhaps  a  well-founded  objection  to  Mr.  Ricardo,  that  he 
sometimes  reasons  upon  abstract  principles  to  which  he  gives 
too  great  a  generalization.  When  once  fixed  in  an  hypothesis 
which  cannot  be  assailed,  from  its  being  founded  on  unques- 
tionable observations,  he  pushes  his  reasonings  to  their  remot- 
est consequences,  without  comparing  their  results  with  those 
of  actual  experience.  In  this  respect,  he  resembles  a  writer 
upon  the  mathematical  theory  of  mechanics,  who,  from  un- 
doubted proofs  drawn  from  the  nature  of  the  lever,  would 
demonstrate  the  impossibility  of  the  vaults  daily  executed  by 
dancers  on  the  stage.  And  how  does  this  happen  ?  The  rea- 
soning is  unexceptionable ;  but  a  vital  force,  often  unperceived, 
and  always  inappreciable,  makes  the  facts  differ  very  far  from 
the  calculations.  From  that  moment,  nothing  in  the  author's 
work  is  represented  as  it  really  occurs  in  nature.  It  is  not  suf- 
ficient to  begin  with  facts ;  other  facts  must  be  collected, 
steadily  examined,  and  the  consequences  drawn  from  them 
constantly  compared  with  the  effects  observed.  The  science 
of  Political  Economy,  to  be  of  practical  utility,  should  not 
attempt  to  teach  what  must  necessarily  take  place,  even  if  de- 
duced by  legitimate  reasoning,  and  from  undoubted  premises ; 
it  ought  to  show  in  what  manner  that  which  in  reality  does 
take  place  is  the  consequence  of  another  fact  equally  certain. 
It  should  ascertain  the  chain  which  binds  them  together,  and 
always  establish  from  observation  the  existence  of  the  two 
links  at  their  point  of  connection." 

It  is  unnecessary  at  present  to  examine  this  reasoning  in  de- 
tail, in  order  either  to  point  out  flaws  in  the  argument,  or  to 
show  that  its  results  do  not  harmonize  with  those  of  observa- 
tion and  experience.  The  whole  theory  rests  upon  a  few 


260  PROFITS. 

premises,  which  have  already  been  examined  and  shown  to  be 
mere  assumptions,  paradoxical  in  appearance,  and  having  no 
foundation  in  fact.  It  is  not  true,  that  the  increase  of  the  pop- 
ulation tends  to  outrun  the  supply  of  food,  or  that  it  compels 
us  to  have  recourse  to  inferior  soils,  or  that  it  necessarily  in- 
creases the  competition  of  laborers  for  employment.  Food 
does  not  become  dearer,  but  is  cheapened,  by  the  growth  of 
the  population ;  the  districts  which  are  most  recently  brought 
into  cultivation  are  not  the  least  fertile,  but  are  often  more  pro- 
ductive than  those  which  have  been  peopled  and  tilled  for  cen- 
turies ;  and  the  capital  which  is  applied  to  them  generally 
yields  a  larger  return  than  that  which  is  employed  in  the  old 
settlements.  It  is  not  even  necessary,  as  the  people  increase 
in  numbers,  to  send  to  a  greater  distance  for  food ;  but  emigra- 
tion distributes  the  people,  and  commerce  distributes  the  food, 
where  both  are  most  needed,  the  combined  result  being  that 
each  generation  is  more  fully  supplied  with  the  means  of  sub- 
sistence than  its  predecessor.  The  only  inequality  to  be  feared 
is  that  which  is  sometimes  caused  by  human  institutions,  in 
the  distribution  of  property ;  and  the  only  famine  which  is  pos- 
sible in  modern  times,  and  among  civilized  nations,  is  produced 
by  poverty,  and  not  by  a  deficient  supply  of  food. 

The  premises  of  Ricardo's  theory  being  thus  proved  to  be 
baseless,  the  entire  superstructure  falls.  The  whole  is  a  mere 
exercise  of  logical  ingenuity,  a  long  series  of  deductions  being 
obtained  from  a  few  definitions  and  hypotheses,  which  have 
no  foundation  in  experience,  and  no  applicability  to  the  cir- 
cumstances of  the  present  time.  The  original  phenomenon  to 
be  explained  —  the  declension  of  the  rate  of  profit  as  society 
advances  in  numbers  and  wealth  —  presents  little  difficulty, 
when  we  regard  the  limited  extent  of  the  field  for  the  employ- 
ment of  capital.  But  this  subject  demands  for  full  considera- 
tion a  separate  chapter. 


THE    FIELD    FOR   THE    USE    OF    CAPITAL.  261 


CHAPTER    XVII. 

THE  RATE  OF  PROFIT  AS  AFFECTED  BY  THE  LIMITED  EXTENT 
OF  THE  FIELD  FOR  THE  EMPLOYMENT  OF  CAPITAL!  THE 
THEORY  OF  GLUTS. 

MR.  WAKEFIELD  was  the  first  among  English  Economists 
to  notice  the  seemingly  obvious  fact,  that,  in  every  country,  the 
field  for  the  employment  of  capital  is  of  limited  extent.  The 
first  introduction  of  capital  into  such  a  field  is  attended  with 
very  large  returns ;  but  as  the  amount  of  it  increases,  the  rate 
of  profit  falls  off;  and  when  the  limit  is  attained,  or  so  nearly 
attained  that  profits  have  fallen  to  a  minimum,  accumulation 
ceases,  there  being  no  longer  any  sufficient  motive  for  the  exer- 
cise of  frugality.  With  an  evident  desire  to  reconcile  this  fact 
to  the  theories  of  Malthus  and  Ricardo,  with  which  it  appears 
to  conflict,  Mr.  Mill  states  the  principle  thus :  —  that  "  on  a 
limited  extent  of  land,  only  a  limited  quantity  of  capital  can 
find  employment  at  a  profit."  Thus  enunciated,  it  seems  to 
be  only  a  corollary  from  Ricardo's  doctrine  of  rent,  which  ex- 
pressly affirms  that  successive  applications  of  capital  to  the 
same  quantity  of  land  can  be  made  only  with  successively 
diminishing  returns.  It  will  appear,  however,  that  the  extent 
of  territory  is  not  the  only,  or  even  the  chief,  limiting  circum- 
stance ;  but  that  the  proper  restriction  is  to  be  found  in  the 
magnitude  of  the  wants  of  the  people,  as  determined  by  their 
numbers,  by  the  degree  of  civilization  under  which  they  live, 
and  by  the  greater  or  less  inequality  of  the  distribution  of  prop- 
erty among  them. 

But  it  should  be  observed,  that  we  are  here  speaking  of  a 
limit  to  the  profitable  employment  of  capital  Some  distin- 
guished Economists,  among  whom  are  Sismondi  and  Malthus, 
have  maintained  that  there  may  be  a  general  over-production 
of  wealth,  "  a  supply  of  commodities  in  the  aggregate  exceed- 
ing the  demand,  and  a  consequent  depressed  condition  of  all 
classes  of  production."  We  are  all  familiar  with  the  fact,  that 
there  is  often,  in  the  market,  a  glut  of  a  particular  commodity, 


262  THE    FIELD    FOR    THE    USE    OF    CAPITAL. 

or  of  several  commodities  at  once.  Prices  are  adjusted,  and 
the  current  of  productive  means  and  productive  energy  is 
turned  from  one  article  to  another,  through  the  indications 
afforded  by  such  instances  of  glut  or  over-supply  on  the  one 
hand,  and  of  dearth  or  scarcity  on  the  other.  But  the  doctrine 
of  these  Economists  is,  that  there  may  be  a  general  glut,  or 
that  the  disposition  and  the  ability  to  produce  may  outrun  the 
ability  of  the  nation  to  consume.  The  disposition  to  consume, 
of  course,  is  coextensive  with  the  disposition  to  produce.  But 
the  ability  to  purchase,  or,  in  other  words,  the  active  and  effi- 
cient demand,  it  is  supposed,  may  so  far  fall  below  the  supply, 
that  there  will  be  a  general  depression  of  prices  and  general 
distress. 

On  the  other  hand,  it  has  been  contended,  with  great  force, 
that  a  general  glut  is  impossible ;  for  every  article  brought  to 
market  is  a  source  both  of  supply  and  demand,  —  the  owner 
of  it  always  wishing  to  exchange  it  for  something  else  of  equal 
value,  so  that  his  desire  to  purchase  contributes  to  lighten  the 
market  to  precisely  the  same  extent  to  which  he  burdens  it  by 
his  desire  to  sell.  No  man  appears  exclusively  in  the  character 
of  a  seller;  he  is  a  buyer  also,  and  he  buys  to  the  same  extent 
to  which  he  sells.  If  he  brings  a  bale  of  cloth  to  market,  for 
instance,  it  is  because  he  wishes  to  exchange  it,  in  the  first 
place,  for  money.  But  this  money  he  does  not  intend  to  keep 
in  reserve,  in  order  to  increase  indefinitely  his  store  of  it.  He 
knows  very  well,  that,  if  the  money  remains  idle  in  his  chest, 
it  will  yield  neither  interest  nor  profits.  He  will  aim,  there- 
fore, to  expend  it  as  soon  as  possible,  —  either  to  buy  articles 
of  comfort  or  luxury  for  his  own  unproductive  consumption ; 
or  to  purchase  raw  material,  tools,  machinery,  seed-corn,  or  the 
like,  with  a  view  to  further  production  ;  or  lastly,  he  may  lend 
it  to  another,  who,  by  investing  it  productively,  —  that  is,  by 
making  purchases  with  it,  —  will  be  enabled  to  pay  him  inter- 
est for  its  use.  In  either  way,  the  money  is  expended ;  pur- 
chases are  made  to  the  full  extent  of  the  original  sale.  If  the 
seller  chooses  to  lend  the  money  to  a  bank,  instead  of  trusting 
it  to  an  individual,  the  result  is  the  same.  The  bank  immedi- 
ately lends  it  over  again  to  some  person  who  wishes  to  enlarge 
his  stock  in  trade  by  buying  more  commodities. 
'"  This  reasoning  is  quite  conclusive  against  the  possibility  of 
\ 


THE    FIELD    FOR   THE    USE    OF    CAPITAL.  263 

a  general  glut;  but  it  must  be  applied  with  two  important 
limitations.  First,  it  goes  upon  the  supposition,  that  the  laws 
and  other  institutions  of  the  country  admit  the  freest  possible 
interchange  of  all  articles  of  wealth.  If  there  be  a  monopoly 
of  any  one  article,  if  only  a  few  persons  are  privileged  or  en- 
abled to  produce  and  sell  it,  —  and  especially  if  this  article  be 
one  of  prime  or  universal  necessity,  —  then  there  may  be  a 
glut,  or  over-production,  of  all  other  articles  with  reference  to 
this  one.  To  illustrate  this  point,  I  will  take  the  most  general 
case.  All  articles  that  are  offered  for  sale  or  exchange  may  be 
roughly  divided  into  two  classes,  according  as  they  are  articles 
of  manufacture  or  products  of  agriculture.  The  latter  are 
chiefly  articles  of  food,  and  the  demand  and  supply  of  food,  as 
we  have  seen,  are  regulated  by  causes  peculiar  to  itself,  wholly 
irrespective  of  the  presence  or  absence  —  the  high  or  low 
prices  —  of  other  commodities.  The  demand  for  agricultural 
products  depends  on  the  number  of  appetites  to  be  satisfied, 
and  can  only  be  enlarged  by  an  increase  of  the  population,  or 
diminished  by  the  population  becoming  smaller ;  the  supply  of 
these  products  is  determined  by  the  extent  of  territory  capable 
of  cultivation,  and  by  improvements  in  the  modes  of  hus- 
bandry. Neither  of  these  sources  of  supply  can  be  increased 
at  will,  or  on  demand ;  the  land,  in  such  a  country  as  Great 
Britain,  is  all  owned  and  occupied,  and  the  number  of  acres  is 
limited  ;  improvements  in  agriculture  are  made  by  the  progress 
of  discovery  and  invention,  and  not  merely  because  they  are 
needed  to  feed  the  people. 

Now  manufactures  must  be  exchanged  for  food,  and  conse- 
quently they  may  be  produced  in  too  great  abundance ;  there 
is  no  limit  to  their  increase,  but  there  is  a  limit  to  the  supply 
of  the  only  article  for  which  they  can  be  bartered.  And  we 
cannot  here  say,  as  the  English  Economists  are  fond  of  saying 
in  the  case  of  a  particular  glut :  "  Transfer  your  capital  and 
industry  from  the  article  of  which  there  is  a  surplus  to  that  of 
which  there  is  a  deficiency."  In  England,  industry  cannot  be 
transferred  from  manufactures  to  agriculture;  the  land  is  all 
owned  and  held  at  a  monopoly  price,  and  the  landlords  refuse 
to  employ  more  labor  upon  it,  even  if  a  greater  amount  of  food 
should  be  produced  by  the  introduction  of  more  hands.  They 
find,  or  think  they  find,  that  a  greater  net  product  remains  to 


264  THE    FIELD    FOR   THE    USE    OF    CAPITAL. 

themselves  when  few  hands  are  employed,  than  when  there  are 
many.  Hence  they  endeavor  to  get  rid  of  a  portion  of  the 
agricultural  laborers,  instead  of  increasing  their  number.  The 
policy  of  most  English  landlords  is  to  depopulate  their  estates, 
to  make  the  peasantry  give  place  to  flocks  and  herds,  as  in  the 
North  of  Scotland,  or  to  compel  them,  by  unroofing  and  tear- 
ing down  their  dwellings,  as  in  Ireland,  to  emigrate  to  foreign 
lands.  Thus  they  imitate  the  system  which  has  been  practised 
for  centuries  in  the  Roman  Campagna,  which  reduced  the 
fields  of  Italy  in  the  age  of  Pliny  to  a  desert,  and  subsequently 
surrendered  them  to  the  Northern  barbarians  because  there 
were  not  men  enough  left  to  defend  them.  The  dispossessed 
tenantry  are  obliged  to  emigrate,  or  are  driven  into  manufac- 
turing industry ;  and  thus  the  glut  of  manufactures  is  increased 
by  the  very  causes  which  diminish  the  supply  of  food.  True, 
food  may  be  imported,  as  we  have  seen,  even  to  an  extent 
which  is  practically  unlimited.  But  the  very  necessity  for  such 
importation,  if  it  is  found  to  exist  in  a  country  the  agricultural 
resources  of  which  are  not  yet  developed  to  the  utmost  possi- 
ble extent,  proves  that,  in  that  country  at  least,  there  is  already 
a  glut  of  manufactures,  and  one  which,  in  its  effect  on  the  rate 
of  profits,  would  be  very  seriously  felt,  if  there  were  not  in 
other  countries  a  glut  of  food.  What  actually  exists  in  one 
nation,  is  possible  in  all  nations ;  if  there  be  an  actual  glut  of 
manufactures  in  Great  Britain,  such  a  glut  is  possible  for  the 
whole  civilized  portion  of  mankind.  And  this  glut  of  manu- 
factured products  in  England  is  not  a  consequence  of  the 
stinted  bounty  of  nature  in  reference  to  agricultural  products. 
The  amount  of  food  produced  there,  from  its  own  soil,  is  yet 
far  from  having  attained  its  maximum;  it  might  become  as 
populous  as  Belgium,  —  that  is,  fifty  per  cent  more  populous 
than  at  present,  —  and  yet  not  only  feed  all  its  inhabitants,  but 
"produce  commonly,"  as  Belgium  does,  "more  than  double 
the  quantity  of  corn  required  for  the  consumption  of  its  inhab- 
itants." * 

In  most  civilized  countries,  at  least  two  thirds  of  the  work- 
ing population  are  engaged  in  agricultural  pursuits,  and  but 
one  third  in  manufactures  and  commerce ;  and  this  proportion 

*  McCulloch's  Geographical  Dictionary. 


THE  FIELD  FOR  THE  USE  OF  CAPITAL.         265 

existed  in  England  itself  down  as  late  as  the  reign  of  the  Stu- 
arts. But  in  1821,  only  one  third  of  £he  English  population 
were  engaged  in  tilling  the  soil ;  and  twenty  years  later,  or  in 
1841,  there  were  only  about  one  fifth  thus  employed,  —  a  de- 
population of  the  rural  districts  to  the  rapidity  of  which  there 
is  no  parallel  in  history.*  There  is  no  absolute  deficiency 
either  of  land  or  food ;  for  both  can  be  had  in  abundance,  as 
has  been  shown,  in  other  countries.  But  as  there  are  obstacles 
which  impede  the  emigration  of  capital,  so  there  are  those 
which  obstruct  in  a  still  greater  degree  the  emigration  of  the 
indigent  portion  of  the  people.  Poverty  —  the  very  cause 
which  renders  it  desirable  for  them  to  emigrate  —  also  renders 
emigration  difficult,  and  often  impossible. 

The  second  limitation  of  the  doctrine  that  a  universal  glut 
is  impossible,  is  founded  on  the  division,  that  I  have  already 
made  (pp.  40,  41),  of  all  the  commodities  which  constitute 
wealth  into  two  classes.  First^  there  are  the  articles  which  are 
designed  for  immediate  consumption,  and  which  directly  sat- 
isfy the  wants  of  man;  such  as  food  and  clothing  that  are 
ready  to  be  eaten  and  worn,  the  houses  that  shelter  us,  and  the 
ornaments  and  luxuries  that  gratify  our  tastes.  And,  secondly, 
there  are  the  tools,  implements,  and  raw  materials,  by  means 
of  which,  or  out  of  which,  the  former  articles  are  made,  but 
which,  in  their  present  shape,  are  not  fitted  for  our  immediate 
gratification  and  support.  These  two  classes  may  be  desig- 
nated respectively  as,  1.  Finished  products,  and,  2.  Producing 
agents.  The  division  between  them  does  not  exactly  corre- 
spond with  that  between  capital  and  the  other  portion  of 

*  The  following  table,  taken  from  the  official  reports,  shows  the  proportionate  per 
cent  of  the  British  population  who  were  engaged  respectively  in  agricultural,  com- 
mercial, and  manufacturing,  and  all  other  pursuits,  at  four  decennial  periods. 

Trade  and 

Agriculture.                 Manufactures.  All  others. 

1811                          .35                              .44  .21 

1821                          .33                              .46  .21 

1831                          .28                              .42  .30 

1841                          .22                               46  .32 

The  census  of  1851,  though  it  presents  a  more  minute  classification  of  the  occu- 
pations of  the  people,  unfortunately  does  not  enable  us  to  divide  the  population  into 
three  classes,  so  as  to  continue  the  foregoing  table.  But  according  to  the  best  esti- 
mate that  can  be  framed  from  it,  the  agricultural  portion  of  the  British  population 
in  1851  was  a  little  less  than  20  per  cent  of  the  whole. 

23 


266  THE    FIELD    FOR   THE    USE    OF    CAPITAL. 

wealth  which  is  not  capital.  All  producing  agents  are  capi- 
tal, it  is  true ;  but  all  finished  products  are  not  excluded  from 
the  definition  of  capital.  A  merchant's  capital,  for  instance, 
often  consists  exclusively  of  commodities  that  are  completely 
manufactured  and  ready  for  use ;  a  retailer's  stock  is  generally 
of  this  character. 

It  is  evident  that  all  wealth  of  the  second  class,  all  produ- 
cing agents,  possess  only  a  kind  of  secondary  and  derivative 
value ;  they  are  prized,  not  for  their  own  sake,  but  for  what 
may  be  made  out  of  them,  or  produced  by  their  aid.  And  it 
is  equally  evident,  that  if  the  demand  for  commodities  of  the 
first  class,  finished  products,  is  not  coextensive,  if  it  does  not 
keep  pace,  with  the  demand  for  the  second  class  of  objects  of 
wealth,  or  producing  agents,  then  there  must  be  an  excess  of 
supply,  or  a  glut,  of  the  former,  and  a  consequent  fall  of  prices 
and  diminution  of  profits.  No  one  buys  a  plough  or  a  loom 
for  its  own  sake  ;  for  in  itself,  it  gratifies  no  feeling  and  satisfies 
no  want.  The  one  is  valued  only  because  it  helps  us  to  raise 
corn,  and  the  other,  because  it  enables  us  to  manufacture  cloth. 
The  only  effect  of  the  purchase  of  either,  then,  is,  not  to  relieve 
the  market  already  glutted  with  corn  and  cloth,  but  to  furnish 
prospectively  a  greater  supply  of  both,  and  thus  to  increase  the 
glut. 

We  may  admit,  then,  the  force  of  the  common  argument, 
so  far  as  it  goes,  against  the  possibility  of  a  glut ;  and  we  may 
still  deny  that  it  covers  the  whole  ground,  or  that  it  demon- 
strates the  impossibility  of  any  such  excess  of  supply  of  one 
class  of  articles,  as  cannot  be  remedied  by  diverting  the  sources 
of  production  from  those  commodities  which  are  in  excess  to 
those  which  are  deficient.  We  admit,  that  a  capitalist  who 
wishes  to  sell  also  wishes  to  buy ;  for  to  sell  is  to  exchange, 
and  the  seller's  disposition  to  part  with  one  product  is  exactly 
measured  by  his  disposition  to  obtain  another  of  precisely 
equivalent  value.  We  admit,  also,  that  he  does  not  wish  to 
sell  or  exchange  for  money  alone,  so  as  to  create  a  scarcity  of 
that  one  article ;  for  though  he  receives  money  in  one  half  of 
his  transaction,  or  as  a  seller,  he  pays  it  in  the  other  half,  as  a 
purchaser.  So  far  as  money  is  concerned,  then,  his  operation 
leaves  the  market  in  the  same  state  in  which  he  found  it,  — 
not  glutted  by  the  number  of  sellers  of  goods,  nor  "  tightened," 
as  the  phrase  is,  by  the  want  of  money. 


THE  FIELD  FOR  THE  USE  OF  CAPITAL.         267 

But  though  he  buys  as  much  as  he  sells,  is  it  true  that  he 
always  relieves  the  market  by  the  former  operation  just  as  fast, 
and  to  the  same  extent,  that  he  burdens  it  by  the  latter,  so  that 
the  balance  of  transactions  remains  as  it  would  have  been,  if 
he  had  not  entered  the  market  at  all  ?  We  can  easily  see  that 
he  does  not,  in  any  one  case  of  two  articles  corresponding  to 
each  other  as  finished  product  and  producing  agent.  Suppose 
the  market,  for  instance,  to  be  already  amply  furnished  with 
grain.  One  who  brings  to  it  an  additional  thousand  bushels 
of  grain  to  sell,  occasions  a  glut  of  this  article,  and  certainly 
does  nothing  towards  relieving  this  glut  by  expending  all  the 
money  which  he  received  for  grain  upon  the  purchase  of 
ploughs  and  other  implements  for  clearing  and  breaking  up 
more  land,  and  thus  producing  a  larger  harvest  the  next  year. 
Or  if  cloth  enough  is  already  offered  for  sale,  the  sellers  of  it 
will  certainly  occasion  a  glut  of  this  article,  if  they  exchange 
the  whole  stock  of  it  for  power-looms,  and  thus  double  or 
treble  the  quantity  of  cloth  which  will  be  offered  for  sale  the 
next  month.  The  same  reasoning  is  applicable  to  any  other 
two  commodities  that  are  related  to  each  other  as  finished 
product  and  producing  agent.  It  is  equally  evident  that  it  is 
applicable  to  all  such  cases,  taken  together ;  or,  in  other  words, 
a  general  glut  of  finished  products  is  possible,  and  such  a  glut 
cannot  be  relieved  by  diverting  capital  to  other  employments. 
There  is  no  other  employment  for  it,  as  every  use  of  capital  is, 
directly  or  indirectly,  to  increase  the  amount  and  value  of  fin- 
ished products.  Then  a  superabundance  of  capital,  in  refer- 
ence to  the  field  for  its  employment,  is  possible ;  and  the 
inevitable  result  of  such  a  surplus  is  a  diminution  of  the  rate 
of  profit. 

Thus  far,  I  have  only  proved  that  a  glut  of  finished  products 
is  possible.  The  probability  of  its  actual  occurrence,  I  have 
already  said,  will  depend  upon  the  magnitude  of  the  wants  of 
the  people,  as  determined,  1.  by  their  numbers,  2.  by  the  de- 
gree of  civilization  which  they  have  obtained,  and,  3.  by  the 
greater  or  less  inequality  of  the  distribution  of  property  among 
them. 

First,  it  is  obvious  enough,  that  the  consumption  of  finished 
products  in  any  country,  other  things  being  equal,  will  depend 
upon  the  number  of  its  inhabitants.  The  demand  for  food  is 


268  THE    FIELD    FOR    THE    USE    OF    CAPITAL. 

necessarily  in  proportion  to  the  number  of  appetites  to  be  sat- 
isfied ;  and  the  other  articles  which  are  absolute  necessaries  of 
life  must  follow  the  same  measure.  Even  the  demand  for 
luxuries  will  be  determined  in  the  same  way,  if  the  tastes  and 
the  abilities  of  the  people  remain  the  same. 

Secondly,  it  is  equally  plain  that  the  extent  of  the  demand 
for  finished  products  will  be  affected  by  the  degree  of  civiliza- 
tion which  the  people  have  attained,  and  that,  other  things 
being  equal,  it  will  advance  with  the  progress  of  refinement 
among  them.  The  wants  of  the  natives  of  the  South  Pacific 
Isles,  when  they  were  first  visited  by  Europeans,  were  almost 
entirely  supplied  by  the  bread-fruit  and  cocoa-nut  trees,  and 
by  yams  and  bananas.  The  bread-fruit  tree  alone  supplied 
them  with  food,  clothing,  and  the  material  for  huts.  When 
they  learned  from  foreigners  the  existence  of  other  comforts 
and  luxuries,  their  wants  rapidly  multiplied ;  the  knowledge  of 
the  uses  of  iron  alone  opened  a  wide  field  for  the  industry  that 
it  created.  Intercourse  with  China  has  created  a  demand  all 
over  the  world  for  tea ;  the  discovery  of  America  added  to- 
bacco, the  potato,  and  many  other  articles,  to  the  list  of  our 
wants.  It  would  be  difficult  to  estimate  the  number  of  trades 
that  have  been  created,  and  the  number  of  persons  who  have 
found  employment,  through  the  diffusion  of  a  taste  for  the  fine 
arts. 

Thirdly,  as  an  effectual  demand  is  created  only  by  the  coex- 
istence of  the  disposition  and  the  ability  to  purchase,  its  extent 
will  depend  upon  the  equality  of  the  distribution  of  property. 
The  two  circumstances  already  mentioned  affect  only  the  mag- 
nitude and  prevalence  of  human  desires ;  and  in  the  present 
state  of  civilization  in  Europe  and  America,  it  may  be  said 
that  these  desires  are  unbounded;  the  gratification  of  some 
desires  appears  to  have  no  effect  but  that  of  exciting  others. 
But  the  ability  to  satisfy  these  desires  exists  in  very  different 
degrees.  If  this  ability  were  equally  diffused,  no  such  thing  as 
over-production  would  be  possible ;  the  consumption  of  an  in- 
dividual, or  a  family,  possessing  a  very  moderate  amount  of 
wealth,  certainly  exceeds  the  productive  power  of  such  a  per- 
son or  family.  On  the  other  hand,  the  consumption  of  much 
the  larger  part  of  the  population  of  Europe  is  limited  to  mere 
necessaries,  or  to  what  the  custom  of  the  country  regards  as 


THE    FIELD    FOR   THE    USE    OF    CAPITAL.  269 

necessaries.  If  the  demands  of  all  were  thus  restricted,  there 
would  be  a  great  surplus  of  productive  power ;  in  the  present 
state  of  invention,  and  with  the  present  accumulation  of  capi- 
tal, mankind  might  be  idle  probably  more  than  half  of  the 
time.  It  is  the  luxury  of  the  rich  which  offers  the  only  vent 
for  all  finished  products  that  exceed  the  definition  of  necessa- 
ries. This  fact  does  not  furnish  any  apology  for  such  luxury ; 
for  a  more  equitable  division  of  the  goods  of  this  world  would 
cause  the  surplus  of  productive  power  —  all  that  is  not  needed 
for  the  creation  of  necessaries  —  to  be  expended  in  providing  a 
multitude  of  what  may  be  called  comforts  and  decencies  for 
the  bulk  of  the  nation.  But  when  property  is  very  unequally 
distributed,  the  luxury  of  a  few  must  make  up  for  the  forced 
abstinence  of  many,  or  there  will  be  a  constantly  increasing 
surplus  of  capital,  which  will  manifest  itself  either  by  the 
forced  emigration  of  such  capital,  or  by  such  a  diminution  of 
the  rate  of  profit  as  will  take  away  all  temptation  to  make  ad- 
ditional savings. 

This  doctrine  seems  plain  enough,  though  it  is  vehemently 
opposed  by  all  English  Economists  of  the  Adam  Smith  and 
Ricardo  school,  who  insist  upon  the  paradox,  that,  not  con- 
sumption, but  production,  creates  a  vent  or  market  for  prod- 
ucts, and  that  the  only  means  of  dissipating  an  apparent  glut 
is  to  stimulate  production.  Their  chief  reason  for  insisting 
upon  this  theory  is  the  admitted  fact,  that  no  one  ever  finds 
any  difficulty  in  bartering  a  finished  product  for  some  other  fin- 
ished product,  provided  he  will  allow  the  purchaser  to  fix  the 
terms  of  the  exchange.  Certainly,  exchange  is  always  possi- 
ble ;  the  only  question  is,  whether  it  is  always  profitable.  And 
this  question  seems  to  be  answered  by  another  admitted  fact, 
that  as  a  country  becomes  wealthy,  and  capital  accumulates, 
producers  find  that  the  only  exchanges  which  they  are  able  to 
make  become  less  and  less  profitable,  or,  in  other  words,  that 
profits  decline,  and  are  only  prevented  from  ceasing  altogether 
by  a  stop  being  put  to  the  process  of  accumulation. 

All  will  allow,  that  the  productive  power  of  every  civilized 
nation  already  exceeds  what  is  requisite  for  providing  all  the 
people  with  a  stock  of  mere  necessaries.  Any  excess  beyond 
this  point  —  whether  such  excess  be  created  by  the  invention 
of  new  machinery,  or  by  the  accumulation  of  fresh  capital  — 
23* 


270  THE    FIELD    FOR    THE    USE    OF    CAPITAL. 

must  be  directed  towards  the  production  of  comforts  and  luxu- 
ries. It  is  a  mere  evasion,  as  we  have  seen,  to  say  that  it  may 
be  directed  to  the  purchase  or  construction  of  more  productive 
agents.  Such  additional  agents  will  only  increase  the  amount, 
perhaps  already  too  great,  of  comforts  and  luxuries  in  the  form 
of  finished  products.  But  when  they  have  reached  this  form 
of  finished  products,  they  must  either  be  consumed,  or  they 
will  lie  idle  and  rot ;  no  other  use  can  be  made  of  them.  They 
are  no  longer  agents  for  anything  but  the  gratification  of  taste 
and  desire.  Consumption,  or  rotting  unused,  is  their  only  pos- 
sible destination.  Now,  I  have  admitted  that,  if  property — or 
purchasing-  power,  which  is  the  same  thing  —  is  pretty  equally 
distributed  among  the  people,  the  aggregate  desire  will  take 
off  and  consume  the  aggregate  product  of  comforts  and  luxu- 
ries, without  causing  any  great  declension  of  profits.  On  an 
average,  each  family  would  be  inclined  to  consume  all  the 
products  which,  under  a  perfectly  equal  distribution  of  prop- 
erty, it  Would  be  able  to  produce  ;  and  this  would  be  enough 
to  prevent  profits  from  falling  at  all ;  the  only  effect  of  the  in- 
vention of  new  machinery  and  improved  processes  of  manu- 
facture would  be  to  increase  the  stock  of  luxuries  which  each 
family  might  thus  consume,  or  to  give  them  more  leisure  time, 
which  is  in  itself  an  additional  luxury.  Some  would  consume 
more,  and  some  less,  than  this ;  but  the  prodigality  of  the  for- 
mer would  be  balanced  by  the  frugality  of  the  latter,  and  the 
only  effect  would  be  the  inequality  of  property  that  would  thus 
be  gradually  induced. 

But  suppose  property  to  be  very  unequally  distributed,  only 
one  hundred  families  now  having  all  the  wealth,  and  the  whole 
remaining  population  being  limited  to  the  bare  necessaries  of 
life.  As  we  suppose  the  productive  power  of  the  community 
to  be  unaltered  by  this  change  in  the  distribution  of  property, 
there  will  be  the  same  amount  of  comforts  and  luxuries  to  be 
consumed  as  before,  and  it  is  evident  that  they  must  be  con- 
sumed solely  by  the  one  hundred  wealthy  families.  Now,  sup- 
pose one  of  these  families  to  be  disposed  to  make  savings,  and 
thus  to  increase  its  productive  power :  it  may  be  proved  that 
both  the  act  of  saving  and  the  employment  of  the  savings 
will  tend  to  create  a  glut  and  to  lower  profits.  The  act  of 
saving  will  leave  the  luxuries  formerly  distributed  among  one 


THE    FIELD    FOR   THE    USE    OF    CAPITAL.  271 

hundred,  to  be  consumed  by  only  ninety-nine  families;  and 
this  diminution  of  the  demand  will  depress  prices  and  profits. 
And  the  employment  of  the  savings  as  capital,  though  it  will 
give  wages  to  an  additional  number  of  poor  families  sufficient 
to  procure  necessaries  for  them,  and  will  furnish  these  necessa- 
ries through  their  labor,  will  leave  also  an  additional  margin  of 
profit,  which  must  be  devoted,  as  before,  to  the  creation  of  lux- 
uries ;  and  thus  a  larger  supply  of  luxuries  will  be  forced  upon 
the  market  in  which  the  ninety-nine  wealthy  families  are  the 
only  purchasers.  A  second  depreciation  of  prices  must  be  the 
consequence. 

The  intention  of  Providence  seems  to  be,  that  the  time  and 
labor  economized,  through  the  use  of  machinery  and  improved 
modes  of  production,  in  the  production  of  necessaries,  should 
be  devoted  to  the  creation  of  luxuries  for  very  general  use,  —  for 
most  of  the  working  families,  as  well  as  for  a  few  persons  of 
wealth ;  or,  supposing  that  there  are  already  luxuries  enough 
for  all,  that  the  time,  the  immunity  from  the  necessity  of  labor, 
so  obtained,  should  be  distributed  among  the  people  with  some 
approach  to  equality,  nearly  all  having  a  portion  of  leisure 
each  week,  to  devote  either  to  recreation  or  mental  improve- 
ment. When  the  distribution,  not  of  wealth  indeed,  but  of 
the  opportunities  for  obtaining  wealth,  is  equalized,  or  made 
to  approach  equality,  there  will  be  no  possibility  of  creating 
too  many  labor-saving  machines,  producing  too  much,  redu- 
cing the  rates  of  profit  too  low,  being  oppressed  with  a  surplus 
of  population,  or  glutting  the  market  of  the  world.  Those 
whose  ambition  is  limited  and  whose  wants  are  few,  will  not 
enter  into  the  strife  as  rival  producers,  but  will  devote  the  sur- 
plus of  time  and  wealth  which  they  have  earned  to  the  gratifi- 
cation of  their  tastes  and  to  a  quiet  enjoyment  of  life. 

I  have  already  noticed  the  fact,  that  Ireland,  where  the  ine- 
quality in  the  distribution  of  property  is  extreme,  is,  in  propor- 
tion to  her  population  and  wealth,  one  of  the  poorest  markets 
for  manufactured  produce  in  the  world ;  while  in  the  United 
States,  as  there  is  a  near  approach  to  equality  in  everything, 
there  is  the  largest  demand  for  such  produce.  From  their  in- 
ability to  purchase  the  cheaper  products  of  the  English  manu- 
factories, the  peasantry  of  Connaught,  of  some  parts  of  Mun- 
ster,  the  county  of  Donegal,  and  the  western  counties  of 


272  THE    FIELD    FOR    THE    USE    OF    CAPITAL. 

Leinster,  "usually  make  their  own  clothing,  consisting  of 
linen,  knitted  stockings,  a  coarse  but  very  serviceable  flannel 
for  women's  clothes,  and  a  good  frieze  for  men.  The  fleece 
of  his  own  sheep,  spun  and  woven  in  his  own  house,  at  sea- 
sons which  would  otherwise  have  been  unemployed,  enabled 
the  cottier  and  peasant  farmer  to  provide  comfortable  clothing 
for  his  family,  which  it  was  hardly  possible  for  him  to  obtain 
in  any  other  way."  *  In  the  United  States,  on  the  other  hand, 
notwithstanding  our  home  manufactures  are  already  very  con- 
siderable, the  importation  of  cotton  and  woollen  goods  alone, 
in  1853  and  1854,  after  deducting  the  reexportation,  exceeded 
in  value  an  annual  average  of  58  millions  of  dollars,  or  nearly 
three  dollars  a  head  for  the  total  white  population.  These 
large  imports  consist  for  the  most  part  of  commodities  which 
may  be  accounted  as  comforts  and  luxuries ;  the  cheaper  arti- 
cles, which  come  under  the  head  of  necessaries^  are  now  almost 
exclusively  of  home  production. 

In  the  business  of  production,  capital  —  which  may  be 
called  embodied  labor,  because  it  consists  of  the  reserved  fruits 
of  previous  industry  —  must  bear  a  certain  proportion  to  free 
or  immediate  labor,  which  is  the  direct  application  of  human 
strength  and  skill.  Embodied  and  free  labor  have  each  a  task 
to  perform  ;  neither  can  be  effectually  applied  without  the  aid 
of  a  due  portion  of  the  other.  The  industry  of  man  is  of  little 
avail,  if  it  be  not  assisted  by  tools,  implements,  and  machines, 
the  accumulated  results  of  his  previous  toil  or  earnings.  Even 
the  savage  cannot  hunt  without  his  weapons,  nor  fish  without 
appropriate  implements ;  and  in  order  to  rise  in  the  scale  of 
civilization,  he  must  have  industry  and  foresight  enough  to  get 
together  an  accumulated  stock  of  necessaries,  so  that  he  may 
be  able  to  execute  prolonged  tasks,  and  to  wait  till  they  are 
completed  before  he  can  enjoy  their  fruits.  On  the  other  hand, 
at  the  opposite  extreme  of  the  social  scale,  when  the  arts  are 
carried  to  perfection,  and  machinery  exists  in  its  most  costly 
and  complicated  forms,  wherewith  to  abridge  human  labor, 
there  is  still  a  necessity  for  some  free  labor  to  superintend  and 
aid  its  operation.  There  may  be  an  excess,  as  well  as  a  defi- 

*  The  Condition  and  Prospects  of  Ireland,  and  the  Evils  arising  from  the  Present  Dis- 
tribution of  Landed  Property,  by  Jonathan  Pirn,  (Dublin,  1848,)  p.  111. 


THE    FIELD    FOR    THE    USE    OF    CAPITAL.  273 

ciency,  of  the  implements  and  machines  with  which  any  com- 
munity performs  its  work.  Between  these  extremes,  the  field 
of  employment  for  capital,  and  the  consequent  demand  for  it, 
vary  to  every  conceivable  degree ;  and  according  as  the  supply 
of  such  capital  falls  short  of,  or  exceeds,  the  demand,  the  prof- 
its are  large  or  small.*  This  can  be  best  illustrated  by  a  glance 
at  the  successive  stages  of  progress  of  an  infant  settlement 
formed  by  civilized  men  in  a  country  hitherto  unoccupied,  or 
inhabited  only  by  savages. 

In  the  infancy  of  such  a  settlement,  the  demand  for  capital 
is  urgent,  for  the  capacities  and  wants  of  the  settlers  far  exceed 
their  means.  The  sources  of  its  prosperity  as  yet  are  latent, 
and  need  to  be  developed.  Clearings  are  to  be  made  in  the 
forests,  buildings  are  to  be  erected,  roads  are  to  be  opened, 
tools  to  be  provided,  and  nearly  the  whole  of  the  complex  ma- 
chinery through  which  an  organized  society  applies  its  ener- 
gies is  to  be  created  out  of  the  raw  materials  afforded  by  the 
land,  the  sea,  and  the  forest.  Luxuries  as  yet  do  not  exist ; 
there  is  hardly  any  opportunity  for  unproductive  consumption, 
beyond  that  of  the  mere  necessaries  of  life.  The  people  are 
frugal  by  compulsion  ;  the  fruits  of  nearly  all  their  toil,  then, 
become  capital,  or  are  converted  into  means  for  the  future 
more  advantageous  application  of  industry.  The  profits  of 
what  capital  there  is  are  also,  of  necessity,  very  great ;  one 
tool  must  be  applied  to  many  purposes,  and  is  therefore  con- 
stantly in  use.  The  axe  for  a  time  must  do  its  own  work,  and 
that  of  the  hammer,  the  saw,  and  the  plane.  The  possession 
of  this  one  instrument  must,  then,  be  a  source  of  great  gain  to 
its  owner ;  he  can  buy  the  unaided  services  of  his  fellows,  the 
only  payment  they  have  to  offer,  for  a  long  time,  by  the  loan 


*  Dr.  Chalmers  states  this  reasoning  very  clearly  in  the  form  of  an  argumentum  ad 
hominem  for  the  Malthusians.  "  As  surely  as  there  might  be  too  many  ploughmen," 
he  says,  "  so  there  might  be  too  many  ploughs.  If,  in  virtue  of  the  excessive  num- 
ber of  ploughmen,  all  cannot  find  employment  without  forcing  an  entrance  upon 
soils  that  would  return  inadequate  wages  for  the  labor,  so,  in  virtue  of  the  excessive 
number  of  ploughs,  all  cannot  find  employment  without  a  like  return  of  inadequate 

profit  for  the  capital :  What  is  true  of  the  living,  is  true  of  the  inanimate 

instrument ;  both  might  be  unduly  multiplied.  As  there  might  be  too  many  men, 
so  might  there  be  too  many  machines,  —  too  many  power-looms,  as  well  as  too 
many  weavers  at  hand-looms,  —  too  many  cotton-mills,  as  well  as  too  many  cotton- 
spinners."  —  Chalmers's  Political  Economy,  Vol.  I.  pp.  93,  94. 


274  THE    FIELD    FOR    THE    USE    OF    CAPITAL. 

of  it  And  in  a  similar  way,  every  other  item  which  constitutes 
capital  in  such  a  community  will  be  productive  of  large  gains. 
After  the  hardships  and  privations  of  the  first  season  are  sur- 
mounted, each  laborer  probably  finds  himself  provided  with 
tools,  so  that  the  profits  on  this  branch  of  capital  are  lessened, 
and,  as  an  opening  has  been  made  in  the  forest,  the  operations 
of  agriculture  can  begin.  There  is  now  a  great  demand  for 
seed-corn,  for  the  natural  fertility  of  the  land  will  return  a 
hundred  fold,  if  the  settler  has  only  what  is  requisite  for  plant- 
ing. He  can  safely  promise  to  return  three  bushels  of  grain  in 
the  autumn,  for  one  bushel  lent  to  him  in  the  spring ;  in  other 
words,  he  can  offer  the  capitalist  a  profit  of  two  hundred  per 
cent  for  seed.  But  after  the  first  harvest  is  successfully  gath- 
ered in,  so  bountiful  is  the  product  of  the  virgin  soil,  that  very 
probably  grain  cannot  be  sold  at  all  in  the  infant  settlement, 
the  supply  altogether  exceeding  the  colonists'  own  wants,  and 
the  means  of  transportation  and  export  not  being  yet  provided  ; 
that  is,  no  profit  can  be  made  on  food  till  the  means  are  ob- 
tained for  sending  this  food  to  market.  Capital  is  now  re- 
quired to  construct  roads  and  furnish  shipping;  and  as  the 
commodity  is  to  be  carried  from  a  place  where  it  has  little  or 
no  value,  to  one  where  it  will  command  a  ready  sale  and  a  high 
price,  the  gains  of  the  merchant  engaged  in  this  transportation 
will  necessarily  be  immense.  For  the  first  few  seasons  after 
American  farmers  had  established  themselves  in  the  Oregon 
Territory,  it  is  an  historical  fact  that  they  fed  their  horses  with 
the  finest  wheat,  no  market  being  within  their  reach  for  the 
sale  of  this  product.  California  was  then  suddenly  peopled, 
almost  in  a  single  season,  after  the  gold-deposits  and  aurifer- 
ous sands  were  found  there ;  and  the  gold-seekers  being  too 
eager  in  their  proper  pursuit  to  find  time  for  planting  grain  for 
themselves,  the  agricultural  products  of  Oregon  suddenly  rose 
to  a  high  price.  The  farmers  on  the  banks  of  the  Willamette 
found  that  they  could  obtain  California  gold  more  cheaply  by 
raising  maize  and  wheat  on  their  own  farms,  than  by  going  to 
the  country  to  dig  it  for  themselves.  The  discovery  of  gold  in 
the  neighboring  Territory,  instead  of  tending  to  the  depopula- 
tion of  Oregon,  as  was  at  first  apprehended,  was  the  great 
source  of  its  prosperity,  as  it  furnished  a  market,  and  indirectly 
supplied  the  country  with  capital. 


THE  FIELD  FOR  THE  USE  OF  CAPITAL.         275 

After  a  country  is  once  sufficiently  stocked,  as  it  would 
seem,  with  capital,  the  progress  of  invention  may  suddenly 
create  a  great  additional  demand  for  it,  by  calling  for  the  con- 
struction of  new  machines  and  improved  implements,  the  use 
of  which  soon  supersedes  the  old  ones.  Thus  the  invention  of 
railways,  and  the  application  of  steam  to  the  purposes  of  land 
conveyance,  have  occasioned,  both  in  England  and  America, 
during  the  last  twenty  years,  an  immense  demand  for  the  in- 
vestment of  capital,  some  of  the  old  forms  in  which  it  was 
embodied  being  rendered  useless  or  unproductive.  Turnpikes 
cease  to  be  productive  property,  and  canals  are  less  profitable 
than  before.  For  a  time,  floating  or  circulating  capital  is  in 
great  request,  as  it  is  needed  for  conversion  into  this  form  of 
fixed  capital ;  and  accordingly,  the  rate  of  interest  rises.  But 
when  the  improvement  is  completed,  this  demand  ceases,  the 
returns  from  the  new  processes  are  very  great,  floating  capital 
accumulates  more  rapidly  than  ever,  and  the  rate  of  interest 
falls  again.  The  railway  improvement  in  England  and  in  the 
eastern  portion  of  the  United  States  may  now  be  said  to  be 
completed ;  only  the  great  Valley  of  the  Mississippi,  and  the 
lines  of  communication  with  the  Pacific  coast,  still  call  for 
additional  investment  on  roads  to  be  traversed  by  the  agency 
of  steam.* 

But  I  need  not  trace  further  these  successive  steps  in  the 
progress  of  opulence  and  the  accumulation  of  capital.  It  is 
evident  that  the  rapidity  of  its  increase  depends  on  the  rate  of 
profit,  which  is  necessarily  high  in  a  new  country,  where  the 
people  are  frugal  and  industrious.  The  rate  gradually  di- 
minishes, both  as  the  primary  and  most  imperative  wants  of 
the  community  are  satisfied,  and  as  artificial  tastes  and  an  ap- 

*  According  to  Mr.  Porter,  (Progress  of  the  Nation,  p.  330,)  up  to  the  end  of  1849 
there  had  been  constructed  in  Great  Britain  and  Ireland  5,996  miles  of  railway,  rep- 
resenting a  capital  of  £  197,500,000.  Over  14,000  miles  of  railway  have  been  com- 
pleted in  the  United  States ;  and  if  those  be  added  which  are  in  process  of  construc- 
tion, the  sum  will  be  17,146.  Taking  the  average  cost  of  construction  and  equip- 
ment at  $  25,000  per  mile,  which  is  a  very  low  estimate,  the  capital  vested  in  these 
American  roads  will  be  $428,750,000.  The  capital  of  the  British  railways,  reck- 
oned in  our  currency,  being  about  $975,000,000,  we  have  a  grand  total  of 
$1,403,750.000,  as  the  sum  which  the  English  and  American  people  have  con- 
verted into  this  one  form  of  fixed  capital  during  the  last  thirty  years.  What  effect 
would  have  been  produced  on  the  rate  of  profit,  if  this  immense  sum  had  remained 
in  the  form  of  circulating  capital,  seeking  investment  ? 


276  THE    FIELD    FOR    THE    USE    OF    CAPITAL. 

petite  for  luxury  and  unproductive  consumption  are  diffused 
among  the  colonists.  Yet  floating  capital  is  soon  acquired  in 
sufficient  quantities  for  the  ordinary  purposes  of  industry  and 
traffic.  In  such  countries  as  England  and  Holland,  however, 
immense  sums  gradually  take  the  form  of  fixed  capital,  being 
vested  in  making  land-improvements  of  the  largest  and  most 
expensive  character;  in  constructing  docks,  harbors,  and  ca- 
nals, erecting  dikes,  and  furnishing  manufactories  with  costly 
machinery.  Vast  as  the  field  is  which  such  works  open  for 
the  investment  of  capital,  it  needs  but  a  glance  at  the  present 
condition  of  England  and  Holland  to  satisfy  us,  that  this  field 
is  all  occupied,  and  the  work  of  fixed  capital  is  done.  What 
farther  savings  from  income  are  made,  must  go  into  the  market 
as  floating  capital,  seeking  investment,  seeking  borrowers  who 
will  take  it  offering  undoubted  security,  and  a  very  moderate 
rate  of  interest.  There  is  great  competition  of  the  lenders 
with  each  other  in  the  English  and  Dutch  markets,  —  a  com- 
petition which  is  most  strikingly  shown  when  the  govern- 
ment appears  as  a  borrower,  and  puts  up  a  large  loan  at 
what  is  virtually  an  auction,  to  be  sold  in  shares  to  the  highest 
bidder. 

A  diminished  rate  of  profit  tends  to  throw  the  great  branches 
of  manufacture  and  commerce  exclusively  into  the  hands  of 
large  capitalists,  and  thus  to  increase  that  inequality  in  the 
distribution  of  wealth  which  was  one  of  the  original  causes  of 
a  fall  of  profits.  Hence  it  is  that,  in  such  countries  as  Holland 
and  England,  where  a  low  rate  of  interest  has  prevailed  for  a 
long  period,  there  is  as  great  an  inequality  of  fortune  among 
manufacturers  and  merchants,  as  among  land-owners.  "  It  is 
in  the  nature  of  trade  and  manufacture,"  says  Mr.  Laing, 
"  that  great  capital  drives  small  capital  out  of  the  field ;  it  can 
afford  to  work  for  smaller  returns.  There  is  a  natural  tendency 
in  trade  to  monopoly,  by  the  accumulation  of  great  wealth  in 
a  few  hands.  It  is  not  impossible,  that,  in  every  branch  of 
trade  and  manufacture  in  Great  Britain,  the  great  capitalist 
will,  in  time,  entirely  occupy  the  field,  and  put  down  small 
capitalists  in  the  same  line  of  business ;  that  a  moneyed  aris- 
tocracy, similar  to  that  in  Genoa,  will  gradually  be  formed,  the 
middle  class  of  small  capitalists  in  trade  and  manufacture  be- 
come gradually  extinguished,  and  a  structure  of  society  grad- 


THE    FIELD    FOR    THE    USE    OF    CAPITAL.  277 

ually  arise  in  which  lords  and  laborers  will  be  the  only  classes 
or  gradations  in  the  commercial  and  manufacturing,  as  in  the 
landed,  system.  An  approximation,  a  tendency  towards  this 
state,  is  going  on  in  England.  In  many  branches  of  industry, 

—  for  instance,  in  glass-making,  iron-founding,  soap-making, 
cotton-spinning,  —  the  great  capitalists  engaged  in  them  have, 
by  the  natural  effect  of  working  with  great  capital,  driven  small 
capitals  out  of  the  field,  and  formed  a  kind  of  exclusive  family 
property  of  some  of  these  branches  of  manufacture.     Govern- 
ment, by  excessive  taxation  and  excise  regulation,  —  both  of 
which  have  ultimately  the  effect,  as  in  the  glass  and  soap  man- 
ufacture and  the  distillery  business,  of  giving  a  monopoly  to 
the  great  capitalist  who  can  afford  the  delay  and  advance  of 
money  these  impediments  require,  —  has   been  hitherto  aiding 
rather  than  counteracting  this   tendency  of  great  capital  to 
swallow  all  the  employments  in  which  small  capital  can  act. 
It  is  not  an  imaginary,  nor  perhaps  a  very  distant  evil,  that  our 
middle  classes  with  their  small  capitals  may  sink  into  nothing, 

—  may  become  tradesmen  or  small  dealers,  supplying  a  few 
great  manufacturing   and  commercial  classes  with  the  arti- 
cles of  their  household  consumpt,  and  rearing  supernumerary 
candidates  for  unnecessary  public  functions,  civil,  military,  or 
clerical ;  and  that  in  trade,  as  in  land,  a  noblesse  of  capitalists, 
and  a  population  of  serfs  working  for  them,  may  come  to  be 
the  two  main  constituent  parts  in  our  social  structure."  * 

I  shall  afterwards  have  occasion  to  show,  that  it  is  the  abun- 
dance of  floating  capital  seeking  investment,  the  competition 
of  lenders  with  each  other,  and  the  consequent  depression  of 
the  rate  of  interest,  that  is  the  great  incentive  to  those  wild  and 
ruinous  speculations  which  usually  precede  a  commercial  cri- 
sis, and  are  commonly,  though  improperly,  attributed  to  some 
defective  regulation  of  the  currency.  The  state  of  the  cur- 
rency, it  is  true,  is  an  index  of  this  perilous  condition  of  things. 
The  currency  feels  the  first  whispers  of  the  approaching  storm ; 
and  it  is  by  a  judicious  management  of  the  banking  system  of 
the  country  that  the  force  of  the  tempest  may  be  somewhat 
checked.  But  the  real  origin  of  the  difficulty  is  situated  far- 
ther back,  and  is  attributable  to  the  imprudence  of  capitalists 


*  Notes  of  a  Traveller,  ed.  of  1854,  p.  187. 

24 


278  THE    FIELD    FOR    THE    USE    OF    CAPITAL. 

rather  than  bankers,  who  are  mere  agents  of  those  who  have 
the  real  power  to  control  the  market, 

But.  my  present  point  is  sufficiently  illustrated,  which  is,  that 
when  a  sufficient  amount  of  wealth  has  taken  the  form  of  fixed 
capital  to  satisfy  all  the  real  wants  of  the  country,  —  that  is, 
when  the  whole  establishment  or  fabric  of  agricultural,  manu- 
facturing, and  commercial  industry  is  completed,  —  then,  if 
savings  from  income  continue  to  be  made,  they  must  be 
pushed  into  market  as  circulating  capital  seeking  investment ; 
and  the  rate  of  profits  and  interest  must  decline  from  the  com- 
petition which  ensues.  This  is  already  the  state  of  affairs  in 
England ;  and  if  we  are  still  distant  from  it  in  the  Atlantic 
States  of  our  own  Union,  it  is  because  the  new  settlements 
which  are  constantly  forming  in  the  West  operate  as  a  drain 
upon  our  capital  as  well  as  our  population ;  and  also  because 
the  field  open  for  the  productive  investment  of  fixed  capital  in 
the  gigantic  improvements  required  in  our  immense  territory 
is  so  vast,  that  centuries  must  elapse  before  it  is  fully  occu- 
pied. 

The  stationary  state  of  wealth,  which  we  thus  see  at  the  end 
of  a  long  vista  of  years,  is  not  a  consummation  to  be  dreaded. 
When  capital  enough  has  been  accumulated  to  afford  an  in- 
come sufficient  for  all  our  wants,  the  only  requisite  for  general 
happiness  is,  that  it  should  be  distributed  with  some  approach 
to  equality;  —  not  the  visionary  and  perfect  equality  which  the 
brain-sick  schemers  of  France  are  vainly  endeavoring  to  real- 
ize ;  but  the  necessary  approximation  to  it  which  is  consistent 
with  entire  regard  for  the  rights  of  property,  and  which  must 
result  from  the  mild  and  beneficent  operation  of  laws  which 
leave  every  man  at  liberty  both  to  spend  and  to  save,  and 
which,  at  the  decease  of  the  first  owner,  distribute  his  inherit- 
ance equally  among  his  natural  heirs. 


MONEY.  279 


CHAPTER    XVIII. 

THE  THEORY  AND  USES  OF  MONEY. 

A  HISTORY  of  the  opinions  of  men  respecting  money,  and 
the  precious  metals  that  are  the  material  of  which  money  is 
made,  would  be  almost  a  complete  history  of  the  progress  of 
Political  Economy.  The  errors  to  which  we  are  liable  on  a 
superficial  consideration  of  the  subject  are  so  natural,  so  liable 
to  be  entertained  by  persons  of  ordinary  judgment  and  ordi- 
nary means  of  information,  that  we  cannot  wonder  at  their 
having  seriously  affected  the  course  of  legislation  in  most  coun- 
tries and  the  general  policy  of  nations.  The  true  theory  of 
money,  when  nakedly  stated,  seems  like  a  string  of  paradoxes, 
which  are  contradicted  by  the  common  sense  of  mankind. 
Yet  the  truth  of  this  theory  is  now  so  clearly  established,  and 
the  course  of  events  in  the  commercial  world  has  contributed 
so  largely  to  illustrate  it,  that  its  fundamental  principles  have 
come  to  be  regarded  as  axioms,  which  no  one  thinks  of  con- 
testing. A  review  of  the  mistakes  which  men  committed  in 
reasoning  upon  the  subject  in  former  times,  of  the  causes 
which  led  to  them,  and  of  the  very  serious  evils  which  were 
their  inevitable  consequences,  would  be  a  curious  and  instruc- 
tive chapter  in  the  philosophy  of  the  human  mind.  I  can 
notice  but  a  few  of  these  blunders,  —  those  only,  in  fact,  the 
confutation  of  which  will  help  to  establish  and  illustrate  the 
doctrine  that  I  wish  to  propound. 

As  money  is  the  universal  medium  of  exchange,  and  as 
wealth  itself  subsists,  or  is  continued  in  existence,  only  through 
an  interminable  succession  of  exchanges,  all  wealth  must,  more 
or  less  frequently,  appear  as  money,  and  be  reckoned  or  esti- 
mated as  such.  Money  is  the  universal  form  or  garb  which 
all  the  items  or  commodities  that  constitute  wealth  occasion- 
ally assume.  At  any  one  time  and  place,  it  is  a  universal 
measure  of  the  comparative  value  of  those  commodities,  and  a 
common  denomination,  to  which,  when  we  wish  to  ascertain 
their  aggregate  or  sum  total,  they  are  all  reduced.  If  a  man 


280  MONEY. 

is  reduced  to  the  necessity  of  borrowing,  he  borrows,  not  the 
particular  articles  that  he  actually  wants,  but  the  money  where- 
with he  can  purchase  those  articles.  If  he  pays  a  debt,  he 
does  not  return  the  very  articles  that  he  borrowed,  or  an  equiv- 
alent amount  of  a  perfectly  similar  kind,  but  he  pays  a  propor- 
tionate amount  of  money.  The  children  in  the  house  of  an 
opulent  trader,  (to  use  once  more  Mr.  Senior's  happy  illustra- 
tion,) having  all  the  necessaries  and  comforts  of  life  supplied 
to  them  with  mechanical  regularity,  without  any  effort  or  sac- 
rifice on  their  part,  may  never  inquire  into  the  machinery  by 
which  these  effects  are  produced.  But  if  their  attention  should 
be  turned  to  the  subject,  finding  that  their  father  often  talked  of 
the  difficulty  of  getting  money,  and  seldom  of  the  difficulty  of 
spending  it,  —  that  he  generally  spoke  of  his  fortune  as  con- 
sisting of  the  money  he  was  worth,  and  that  the  motive  which 
he  generally  assigned  for  refusing  them  any  luxury  was,  that 
he  had  not  money  enough  to  afford  it,  —  they  would  conclude 
that  money  alone  was  wealth,  or  the  solitary  means  of  obtain- 
ing everything  which  is  desirable ;  that  their  enjoyments  de- 
pended on  the  money  which  their  father  received,  and  were 
lessened  by  every  other  occasion  he  had  for  expending  money ; 
and  that  their  abundance,  in  truth,  depended  on  the  amount 
of  money,  for  the  time  being,  in  his  strong-box,  and  would  be 
increased  indefinitely,  provided  that  this  amount  could  be  in- 
definitely augmented  and  retained. 

This  now  seems  to  us  as  the  reasoning  of  children ;  yet  it 
was  precisely  thus  that  the  legislatures  and  governments  of  the 
most  civilized  nations  reasoned,  down  certainly  to  as  late  a 
period  as  the  beginning  of  the  last  century.  The  most  strin- 
gent, even  sanguinary,  laws  were  made  to  prevent  the  expor- 
tation of  the  precious  metals ;  and  bounties  were  held  out  to 
favor  the  exportation  of  other  commodities,  for  which,  it  was 
supposed,  these  metals  would  be  received  in  exchange.  Even 
so  distinguished  and  sensible  a  philosopher  as  Mr.  Locke 
argues  thus :  — "  All  other  movable  goods  are  of  so  consum- 
able a  nature,  that  the  wealth  which  consists  in  them  cannot 
be  much  depended  on ;  and  a  nation  which  abounds  in  them 
one  year  may,  without  any  exportation,  but  merely  by  their 
own  waste  and  extravagance,  be  in  great  want  of  them  the 
next.  Money,  on  the  contrary,  is  a  steady  friend,  which, 


MONEY.  281 

though  it  may  travel  about  from  hand  to  hand,  yet,  if  it  can  be 
kept  from  going  out  of  the  country,  is  not  very  liable  to  be 
wasted  and  consumed.  Gold  and  silver,  therefore,  are  the  most 
solid  and  substantial  part  of  the  movable  wealth  of  a  nation  "  ; 
and  to  multiply  these  metals  ought,  he  thinks,  upon  that  ac- 
count, to  be  the  great  object  of  its  political  economy.  Many 
worthy  persons,  even  at  the  present  day,  though  they  do  not 
reason  quite  so  absurdly  as  this,  are  accustomed  to  deplore  an 
unfavorable  turn  in  our  exchanges  with  foreign  countries,  not 
because  it  is  an  index  of  a  real  evil,  —  that  we  have  been  over- 
trading, or  buying  foreign  goods  on  credit  to  an  extent  beyond 
our  wants  and  our  means,  —  but  because  it  tends  to  drain  the 
country  of  its  precious  metals,  to  lessen  the  specie  basis  on 
which  our  banks  are  trading,  and  thereby  to  diminish  the  secu- 
rity of  our  currency. 

In  attempting  to  refute  these  errors,  I  shall  speak  first  only 
of  money  properly  so  called^  and  not  of  its  substitutes.  In 
other  words,  I  shall  consider  the  currency  as  if  it  consisted  ex- 
clusively of  specis,  or  of  coined  gold  and  silver,  and  shall  speak 
of  the  circumstances  which  determine  the  value  of  such  specie, 
of  its  utility  as  one  of  the  bases  of  its  value,  and  of  the  man- 
ner in  which  its  use  as  money  affects  the  value  of  the  bullion 
from  which  it  is  made. 

I  say,  then,  that  money  is  merely  a  contrivance  for  dimin- 
ishing the  friction  of  exchange ;  and  though  a  safe  and  con- 
venient, it  is  also  a  very  costly,  contrivance  for  this  end.  It  is 
absolutely  unproductive  except  for  this  purpose ;  it  is  a  portion 
of  the  wealth  of  the  country,  it  is  true ;  but  it  is  a  portion  of 
our  unproductive  wealth,  not  of  our  capital.  We  are  the 
poorer  by  the  loss  of  profit  or  interest  on  all  of  it  which  we  are 
obliged  to  keep  on  hand.  Money  (paradoxical  as  the  asser- 
tion may  seem)  yields  neither  profit  nor  interest.  It  is  only 
the  goods  or  commodities  that  are  transferred  or  exchanged 
by  means  of  money,  which  yield  profit ;  and  this  profit  or  in- 
terest, as  we  have  seen,  depends  on  the  mutations  or  changes 
of  form  that  they  undergo.  The  very  reason  which  Locke  ad- 
duces for  the  high  estimate  put  upon  money  in  comparison 
with  other  objects  of  wealth,  —  namely,  its  durability,  or  the 
fact  that  it  cannot  be  consumed,  —  is  the  cause  why  it  is  not 
productive.  The  specie  which  a  merchant  or  a  banker  holds 
24* 


282  MONEY. 

in  store,  to  provide  against  daily  calls  or  sudden  emergencies, 
is  the  only  unproductive  portion  of  his  capital ;  he  is  subject 
to  a  loss  of  interest  on  the  whole  amount  thus  retained.  It 
has  been  already  proved,  that  it  is  only  through  the  constant 
transformations  of  capital,  through  its  repeated  consumption 
and  reproduction,  that  it  is  made  to  yield  a  profit.  And  even 
as  an  article  of  unproductive  wealth,  it  may  be  said  of  money 
that  it  gratifies  no  taste,  and,  in  its  capacity  as  money,  apart 
from  its  character  as  a  portion  of  wealth,  it  yields  no  enjoy- 
ment. The  coin  which  a  man  keeps  in  his  pocket  does  not, 
like  his  shoes  or  his  hat,  contribute  to  his  comfort ;  it  is  a  con- 
venience to  him  only  as  it  supplies  immediate  means  for  mak- 
ing small  purchases  or  satisfying  small  demands. 

Thus  it  answers  a  useful  purpose ;  for,  as  I  have  said,  it  fa- 
cilitates exchanges.  In  this  respect,  it  corresponds  perfectly, 
if  I  may  adopt  Adam  Smith's  illustration,  to  the  land  which  is 
used  for  roads  and  other  avenues  of  passage  and  transporta- 
tion. The  land  thus  appropriated  affords  no  rent ;  it  cannot 
be  used  for  the  purposes  either  of  agriculture  or  building.  We 
cannot  do  without  the  roads,  any  more  than  we  can  do  with- 
out money ;  but  the  necessity  of  devoting  much  land  to  this 
use  is  a  tax  upon  the  community,  and  a  tax  to  a  serious 
amount;  for  it  yields  no  profit,  and  it  costs  a  considerable 
sum  for  keeping  it  in  repair.  So  the  cost  to  a  community  of 
the  money  which  it  needs  is  a  serious  drain  upon  its  resources. 
For  money  also  needs  to  be  kept  in  repair ;  the  loss  by  abra- 
sion, by  actual  rubbing  down  through  much  handling,  is  con- 
siderable. The  deficiency  in  weight  of  the  old,  worn  coins, 
when  they  are  called  in  to  be  recoined,  has  to  be  made  up  by 
the  public.  An  operation  of  this  kind  in  William  and  Mary's 
time,  recoining  all  the  specie  currency  of  Great  Britain,  and 
issuing  it  again  of  the  proper  weight,  cost  the  government 
about  two  and  a  half  millions  sterling,  or  twelve  millions  of 
dollars.  McCulloch  estimates  the  whole  loss  from  abrasion, 
and  from  such  accidents  as  shipwrecks,  fires,  and  forgetting 
the  places  where  hoards  of  it  have  been  buried  or  otherwise 
concealed,  at  one  per  cent  a  year ;  estimating,  as  Mr.  Senior 
does,  the  whole  metallic  currency  of  England  at  thirty  millions 
sterling,  or  150  millions  of  dollars,  the  annual  cost  of  main- 
taining this  currency  in  repair  is  about  a  million  and  a  half  of 
dollars. 


MONEY. 


This,  however,  is  not  the  heaviest  charge  which'  the  posses- 
sion of  a  large  amount  of  coined  money  entails  upon  the  na- 
tion. The  loss  of  profit  or  interest  may  be  estimated  by 
regarding  the  specie  currency  as  so  much  unproductive  wealth, 
which,  if  it  were  turned  into  active  capital,  would  increase 
the  national  income  by  a  large  annual  profit.  The  whole 
gold  and  silver  currency  of  France,  for  instance,  is  estimated 
at  400  millions  of  dollars ;  considering  the  rate  of  profit  in 
that  kingdom  to  be  only  six  per  cent,  the  annual  expense  of 
keeping  so  much  money  within  the  limits  of  the  country  is 
twenty-four  millions ;  add  one  per  cent  as  the  cost  of  keeping 
the  coin  in  repair,  and  the  total  expense  is  twenty-eight  mil- 
lions of  dollars,  or  more  than  half  the  sum  which  would  defray 
the  whole  expense  of  our  national  government  in  a  time  of 
peace.  We  cannot  estimate  with  much  precision  the  amount 
of  currency  here  in  the  United  States ;  but  the  returns  of  all 
the  banks  in  the  Union,  made  to  the  Secretary  of  the  Treasury 
in  May,  1854,  indicate  that  the  average  circulation  of  bank- 
notes is  now  about  200  millions  of  dollars,  founded  on  specie 
reserves  held  by  the  banks,  of  sixty  millions.  The  gold  and 
silver  in  the  treasury  depositories  of  the  United  States  at  the 
same  period  amounted  to  twenty-five  millions.  If  we  suppose 
that  forty  millions  of  gold  and  silver  coins  are  in  the  hands  of 
individuals  and  other  corporations  than  banks,  an  estimate  cer- 
tainly not  too  large,  we  have  265  millions  of  dollars  as  the 
total  of  our  circulation.  The  average  rate  of  profit  through- 
out the  United  States  is  at  least  as  high  as  ten  per  cent ;  add 
one  per  cent  for  the  loss  by  abrasion,  and  by  shipwrecks,  fires, 
&c.,  and  we  have  over  twenty-nine  millions  for  what  would  be 
the  annual  cost  of  our  currency,  did  it  consist  exclusively  of 
specie.  In  fact,  a  large  portion  of  it  consists  of  bank-notes,  a 
cheap  substitute  for  coin  ;  so  the  actual  cost  is  but  eleven  per 
cent  on  125  millions  of  specie,  or  a  little  less  than  fourteen 
millions  a  year. 

I  should  be  unwilling  to  introduce  these  statistical  computa- 
tions, if  they  did  not  contribute  more  powerfully  than  other 
arguments  to  overthrow  the  old  popular  errors,  that  coined  sil- 
ver and  gold  alone  constitute  national  wealth,  or  that  they 
possess  material  advantages  over  every  other  commodity 
which  is  admitted  to  be  wealth.  There  is  no  occasion  to 


284  MONEY. 

undervalue  the  real  service  that  is  rendered  by  money ;  it  is 
just  as  essential  in  every  civilized,  nay,  in  every  barbarous 
community,  as  a  system  of  roads  or  other  means  of  transpor- 
tation. Our  only  point  is,  that  it  is  a  very  expensive  servant, 
and  that  the  true  policy  of  nations  is  to  get  along  with  the  use 
of  as  little  of  it  as  possible.  We  need  a  certain  amount  of 
money,  proportioned  to  our  population,  the  extent  of  our  terri- 
tory, and  the  magnitude  of  our  commercial  operations ;  to 
attempt  to  amass  a  larger  amount  than  this,  would  be  as  great 
a  folly  as  to  lay  out  a  greater  number  of  roads  than  is  neces- 
sary, and  to  build  more  carriages  than  are  needed  to  carry  the 
freight  and  passengers.  Because  specie  is  costly,  there  have 
been  invented  of  late  years  a  great  variety  of  cheap  substitutes 
for  it,  chiefly  various  forms  or  sorts  of  bank-notes,  some  of 
which  are  very  useful,  and  others  very  mischievous  expedients. 
The  great  advantage  that  gold  and  silver  money  possesses  over 
them  all  is  the  perfect  security  that  it  affords ;  the  great  disad- 
vantage is  its  expensiveness. 

The  utility  of  such  a  universal  medium  of  exchange  as 
money  is  very  clearly  and  briefly  explained  by  Adam  Smith. 
"  When  the  division  of  labor  has  been  once  thoroughly  estab- 
lished, it  is  but  a  very  small  part  of  a  man's  wants  which  the 
produce  of  his  own  labor  can  supply.  He  supplies  far  the 
greater  part  of  them  by  exchanging  that  surplus  part  of  the 
produce,  which  is  over  and  above  his  own  consumption,  for 
such  parts  of  the  produce  of  other  men's  labor  as  he  has  occa- 
sion for.  But  when  the  division  of  labor  first  began  to  take 
place,  this  power  of  exchanging  must  frequently  have  been 
very  much  clogged  and  embarrassed  in  its  operations."  One 
man  may  have  hats  that  he  wishes  to  sell,  and  another  person 
may  wish  to  buy  one.  But  the  latter  may  have  only  bread  to 
offer  in  payment,  an  article  with  which  the  former  may  be 
already  provided.  "No  exchange  can  in  this  case  be  made 
between  them.  In  order  to  avoid  the  inconveniency  of  such 
situations,  every  prudent  man  must  naturally  have  endeavored 
to  manage  his  affairs  in  such  a  way,  as  to  have  at  all  times  by 
him,  besides  the  peculiar  produce  of  his  own  industry,  a  certain 
quantity  of  some  one  commodity  or  another,  such  as  he  imag- 
ined few  people  would  be  likely  to  refuse  in  exchange  for  the 
produce  of  then:  industry."  If  the  whole  community  should 


select  and  agree  upon  some  one  article  for  this  purpose,  every 
person  in  it  would  gladly  accept  this  commodity  in  exchange 
for  anything  that  he  had  to  sell ;  he  would  receive  it,  not  be- 
cause he  wished  to  use  or  consume  it,  but  because  he  intended 
to  buy  something  else  with  it ;  and  he  knows  that  the  person 
who  has  this  other  thing  to  sell,  will  readily  part  with  it  in  ex- 
change for  that  commodity  which  all  had  agreed  to  accept. 
This  is  just  the  case  with  money ;  every  one  is  willing  to  re- 
ceive it,  not  because  he  intends  to  use  it  as  a  thing  to  be  con- 
sumed, but  simply  because  he  knows  that  every  one  else  is 
willing  to  take  it  in  exchange.  He  receives  it  because  he  in- 
tends to  part  with  it  as  soon  as  possible  in  exchange  for  some- 
thing that  he  does  desire  to  consume.  The  first  requisite, 
then,  for  an  article  that  is  intended  to  be  used  as  money,  is 
the  willingness  of  everybody  to  receive  it  in  exchange  for  any- 
thing that  he  wishes  to  sell ;  and  the  characteristic  quality  of 
money  is  that  it  is  not  intended,  and  in  fact  is  not  fit,  to  be 
used  for  any  purpose  but  that  of  being  passed  from  hand  to 
hand.  It  is  simply  a  ticket  of  transfer,  a  medium  of  ex- 
change. 

It  would  seem,  then,  that  almost  any  commodity  might,  by 
common  consent,  be  used  as  money ;  and,  in  fact,  different  na- 
tions have  employed  a  great  variety  of  articles  for  this  purpose. 
The  North  American  Indians  used  wampum,  or  small  shell 
beads  strung  together  as  ornaments ;  and  our  Puritan  fathers, 
having  very  little  silver  and  gold,  gravely  adopted  this  Indian 
money,  and  conducted  their  own  traffic  with  each  other,  as 
well  as  with  the  savages,  in  wampum.  Afterwards  they  used 
Indian  corn,  their  staple  product,  as  currency.  Some  African 
and  East  Indian  tribes  use  cowries,  another  kind  of  small  or- 
namental shells  strung  together ;  the  inhabitants  of  Newfound- 
land adopted  dried  cod  for  this  purpose,  and  the  Abyssinians 
rock-salt. 

Some  considerations  of  convenience,  however,  have  gener- 
ally inclined  civilized  nations  to  adopt  one  or  more  of  the  met- 
als for  use  as  money.  "  Metals  can  not  only  be  kept  with  as 
little  loss  as  any  other  commodity,  scarce  anything  being  less 
perishable  than  they,  but  they  can  likewise,  without  any  loss, 
be  divided  into  any  number  of  parts,  and  by  fusion  these  parts 
can  be  easily  reunited,  —  a  quality  which  no  other  equally  du- 


286  MONEY. 

rable  commodities  possess,  and  which  renders  them  peculiarly 
fit  to  be  the  instruments  of  commerce  and  circulation."  The 
quantity  of  metal  can  be  proportioned  to  the  precise  quantity 
of  any  other  commodity  which  we  have  occasion  to  purchase. 
The  weight  and  purity  of  a  lump  or  bar  of  metal  can  also  be 
determined,  once  for  all,  with  great  exactness ;  and  when  de- 
termined, they  can  be  made  known  by  a  stamp,  proper  precau- 
tions being  taken  against  this  mark  being  counterfeited,  and 
the  stamp  being  made  to  cover  the  whole  surface  of  the  piece, 
so  that  no  portion  of  it  can  be  abstracted  without  the  loss 
being  readily  perceived.  The  trader  is  thus  relieved  from 
two  very  considerable  inconveniences,  —  the  trouble  of  weigh- 
ing and  of  assaying  every  piece  of  metal  which  he  receives. 
The  qualities  which  recommend  the  metals  for  use  as  cur- 
rency indicate  with  sufficient  clearness  the  second  requisite 
of  money,  —  namely,  that  it  shall  be  a  good  common  meas- 
ure of  value,  so  that  an  exact  equivalent  can  be  offered  in 
it  for  any  amount  or  quantity  of  value  which  we  wish  to  ex- 
change. 

The  importance  of  this  requisite  appears  from  the  experience 
of  the  ancient  Greeks,  who  seem  to  have  used  cattle  as  money ; 
Homer  tells  us  that  the  armor  of  Diomede  cost  only  nine  oxen, 
whilst  that  of  Glaucus  cost  one  hundred.  "  But  cattle,"  says 
Colonel  Torrens,  "  must  have  been  a  most  inconvenient  instru- 
ment of  exchange.  The  person  who  wished  to  purchase  a 
supply  of  cloth,  and  who  had  nothing  to  give  in  exchange  for 
it  but  a  sheep  or  an  ox,  would  be  obliged  to  buy  cloth  to  the 
value  of  a  whole  sheep  or  a  whole  ox  at  a  time.  He  could 
not  buy  less,  because  his  medium  of  exchange,  his  money, 
could  not  be  divided  without  loss ;  and  if  he  wished  to  pur- 
chase more,  he  would  for  the  same  reason  be  obliged  to  take 
double  or  treble  the  quantity,  —  the  value  of  two  or  three  sheep, 
or  two  or  three  oxen.  Now,  it  is  evident  that  a  medium  so 
bulky,  so  unportable  and  indivisible  as  cattle,  would  frequently 
obstruct  the  interchange  of  commodities.  Finding  it  often 
difficult,  and  sometimes  impossible,  to  exchange  by  means  of 
cattle  the  surplus  products  of  their  respective  industry  for  the 
precise  quantity  of  other  articles  which  they  might  require,  the 
inhabitants  of  the  country  in  which  cattle  formed  the  only  ac- 
knowledged measure  of  value  would,  on  many  occasions,  be 


MONEY.  287 

compelled  to  supply  their  various  wants  by  combining  in  their 
own  persons  a  variety  of  occupations.  The  divisions  of  em- 
ployment would  therefore  be  very  imperfectly  established  ;  the 
productive  powers  of  industry  would  be  checked,  and  the  coun- 
try withheld  from  the  acquisition  of  that  general  opulence 
which,  if  it  possessed  a  more  perfect  instrument  of  mercantile 
industry,  it  would  be  capable  of  acquiring." 

In  fact,  the  want  of  a  convenient  medium  of  exchange  in- 
creases in.  a  direct  ratio  with  the  progress  of  the  division  of 
labor,  and  the  consequent  development  of  commercial  indus- 
try. In  the  earliest  stages  of  society,  when  each  family  raises 
and  manufactures  nearly  all  the  commodities  which  it,  con- 
sumes, and  therefore  needs  to  effect  but  few  exchanges,  and 
can  generally  transact  these  by  directly  bartering  its  superflu- 
ities for  necessaries,  a  very  rude  medium  of  exchange  will  be 
sufficient,  or  the  people  can  do  without  money  altogether. 
But  when  the  division  of  labor  is  so  far  advanced  that  one 
man  manufactures  only  a  part  of  a  knife-blade,  or  the  fraction 
of  a  pin,  and  the  industry  of  his  neighbor  is  equally  limited, 
some  article  must  be  selected  for  use  as  money,  which  will  be 
a  convenient  and  universally  acknowledged  measure  of  value, 
and  possess  all  the  other  attributes  requisite  for  effecting  ex- 
changes with  quickness  and  facility. 

Various  metals  have  been  used  at  different  times  for  this 
purpose.  The  Spartans  adopted  iron,  the  ancient  Romans 
copper,  the  Russians,  at  one  time,  platinum ;  but  modern  na- 
tions, with  great  unanimity,  have  preferred  silver  and  gold. 
One  reason  for  this  preference  is,  that  they  have  great  value  in 
proportion  to  their  weight  and  bulk.  Silver,  of  course,  is  less 
convenient  in  this  respect  than  gold ;  to  pay  a  debt  of  a  quar- 
ter of  a  million  of  dollars  would  require  the  transfer  of  about 
five  tons  of  metal.  But  the  capital  consideration  in  favor  of 
these  metals  is,  that  they  are  less  subject  to  fluctuations  in 
value  than  any  other  commodity  whatsoever.  Not  to  be  liable 
to  sudden  changes  in  value,  nor  as  far  as  possible  to  any 
changes  at  all,  is  the  third  great  requisite  for  money.  From 
the  time  when  the  precious  metals  were  first  generally  adopted 
for  this  purpose,  up  to  the  year  1848,  they  underwent  only  one 
great  change  in  value,  —  that  which  followed  the  great  in- 
crease in  the  supply  of  them  consequent  upon  the  discovery 


288  MONEY. 

of  the  mines  in  Spanish  America.  This  event,  in  the  course 
of  a  century  and  a  half,  caused  a  depression  of  their  value  to 
about  a  fourth  part  of  what  it  had  been ;  that  is,  an  ounce  of 
silver  or  gold  in  1650  would  purchase  but  one  fourth  as  much 
food  as  could  have  been  obtained  for  it  a  century  and  a  half 
earlier.  With  this  exception,  and  excepting  also  the  change 
which  the  influx  of  Californian  and  Australian  gold  is  now 
effecting,  the  precious  metals  have  been  very  steady  in  value  ; 
their  quantity  cannot  be  suddenly  diminished ;  and  the  de- 
mand for  them  is  so  great,  that  any  unusual  productiveness  of 
the  mines  cannot  speedily  lower  their  value. 

The  other  articles  which  have  been  used  as  money  are  sub- 
ject to  sudden  and  great  variations  in  value.  An  unusually 
abundant  harvest  may  depress  the  price  of  corn  one  half  in  a 
single  season.  No  one  would  be  willing  to  accept  in  payment 
a  commodity  which  might  lose  a  large  portion  of  its  value 
while  in  his  possession.  Cattle  cannot  be  preserved,  or  trans- 
ported from  one  place  to  another,  without  considerable  trouble 
and  expense  ;  and  owing  to  a  difference  in  their  qualities,  one 
ox  might  be  worth  two  or  three  oxen  of  a  different  species. 
Salt,  shells,  and  fish  are  equally  liable  to  objection ;  the  values 
of  equal  quantities  of  them  differ  considerably ;  some  cannot 
be  divided,  and  others  cannot  be  preserved  or  transported, 
without  some  expense. 

For  obvious  reasons,  two  or  three  metals  are  generally  used 
together,  for  different  denominations  of  money,  in  the  same 
country.  Gold,  which  contains  the  most  value  in  proportion 
to  its  bulk,  is  most  convenient  for  large  payments ;  it  is  not  so 
well  adapted  for  "  making  change,"  as  it  is  called,  or  settling 
the  fractional  parts  of  an  account,  even  the  gold  dollar  which 
is  coined  in  the  United  States  being  inconveniently  small. 
For  sums  varying  from  five  cents  to  a  dollar,  silver  is  the  most 
convenient  medium,  copper  being  used  when  even  a  silver 
piece  would  be  too  minute  in  size.  Copper  coins,  however, 
are  employed  only  as  tokens,  being  rated  from  75  to  100  per 
cent  above  their  real  value.  The  privilege  of  issuing  them  at 
this  nominal  valuation  is  confined  to  the  government,  and  they 
are  made  legal  tender  only  to  the  amount  of  the  smallest  sil- 
ver coin.  In  France  and  some  other  countries,  a  compound 
of  silver  and  some  baser  metal  is  sometimes  coined,  which  not 


MONEY.  289 

only  represents,  but  is  actually  worth,  the  small  sums  for  which 
copper  is  used  elsewhere. 

"  Whatever  may  be  the  advantages  attending  the  use  of 
coined  money,"  says  McCulloch,  "  and  they  are  great  and  ob- 
vious, it  is  necessary  to  observe  that  its  introduction  does  not 
affect  the  nature  of  exchanges.  Equivalents  are  still  given  for 
equivalents.  The  exchange  of  a  quarter  of  corn  for  an  ounce 
of  pure,  unfashioned  gold  bullion,  is  undeniably  as  much  a 
real  barter,  as  if  it  had  been  exchanged  for  an  ox  or  a  barrel  of 
beer.  But  supposing  the  metal  to  have  been  formed  into  a 
coin,  that  is,  marked  with  a  stamp  indicating  its  weight  and 
fineness,  it  is  plain  that  circumstance  could  have  made  no 
change  in  the  terms  of  the  barter.  The  coinage  saves  the 
trouble  of  weighing  and  assaying  the  bullion,  but  it  does  noth- 
ing more.  A  coin  is  merely  a  piece  of  metal  of  known  weight 
and  fineness  ;  and  the  commodities  exchanged  for  it  are  always 
held  to  be  of  equal  value.  And  yet  these  obvious  considera- 
tions have  been  very  generally  overlooked.  Coined  money, 
instead  of  being  received  in  the  same  light  as  other  commodi- 
ties, has  been  looked  upon  as  something  quite  mysterious.  It 
was  said  to  be  both  a  sign,  and  a  measure,  of  value.  In  truth, 
however,  it  is  neither  the  one  nor  the  other.  A  sovereign  is 
not  a  sign;  it  is  the  thing-  signified.  A  promissory  note,  pay- 
able at  some  stated  period,  may  not  improperly  be  considered 
as  the  sign  of  the  specie  to  be  paid  for  it ;  but  that  specie  is 
itself  a  commodity,  possessed  of  real  exchangeable  worth.  It 
is  equally  incorrect  to  call  money  a  measure  of  value.  Gold 
and  silver  do  not  measure  the  value  of  commodities,  more  than 
the  latter  measure  the  value  of  gold  and  silver.  Everything 
possessed  of  value  may  either  measure,  or  be  measured  by, 
everything  else  possessed  of  value.  When  one  commodity  is 
exchanged  for  another,  each  measures  the  value  of  the  other. 
If  the  quartern  loaf  were  sold  for  a  shilling,  it  would  be  quite 
as  correct  to  say,  that  a  quartern  loaf  measured  the  value  of  a 
shilling,  as  that  a  shilling  measured  the  value  of  a  quartern 
loaf." 

To  ascertain  the  relative  value  of  different  commodities  at 
any  one  time  and  place,  I  have  already  said  that  money  is  the 
best  measure,  simply  because  a  silver  dollar  or  a  gold  sover- 
eign is  a  well-known  and  convenient  unit  of  measurement; 
25 


MONEY. 


when  the  coinage  is  in  a  perfect  state,  any  one  dollar  or  sover- 
eign is  precisely  equal  in  weight  and  fineness  to  any  other 
dollar  or  sovereign;  and  every  article  of  value  is  more  fre- 
quently exchanged  for  money  than  for  any  other  one  commod- 
ity. Tell  a  shoemaker  that  a  certain  house  is  worth  so  many 
dollars,  and  the  information  will  be  definite  and  intelligible  to 
him  ;  for  he  has  been  accustomed  to  barter  shoes  for  dollars, 
so  that,  knowing  what  is  the  relative  value  of  these  two  things, 
he  can  know  by  inference  the  relative  value  of  the  house  and 
shoes,  —  the  article  that  he  is  best  acquainted  with.  But  tell 
him  that  the  house  is  worth  so  many  oxen,  and  the  information 
will  probably  be  of  little  use ;  for  he  has  not  been  wont  to  ex- 
change shoes  for  oxen,  and  he  knows  that  oxen  differ  widely 
from  each  other  in  value. 

To  ascertain  the  relative  value  of  commodities  at  different 
times,  especially  if  a  long  lapse  of  years  has  intervened,  a 
bushel  of  wheat  is  a  better  unit  of  measurement,  though  still 
an  imperfect  one,  than  a  dollar.  The  discovery  of  new  mines 
or  deposits  of  the  precious  metals,  or  the  exhaustion  of  old 
ones,  may  have  so  far  affected  the  value  of  bullion,  that  an 
ounce  of  it  at  the  later  date  may  purchase  only  half  as  much, 
or  twice  as  much,  as  at  the  former  one.  The  quantity  of  sil- 
ver contained  in  a  dollar  in  1650,  for  instance,  would  buy  only 
one  fourth  as  much  grain  or  meat  as  in  1500.  But  it  cost 
about  the  same  amount  of  labor  to  raise  a  bushel  of  wheat  at 
one  of  these  periods  as  at  the  other ;  and  the  whole  quantity 
of  wheat  raised  in  England  bore  about  the  same  proportion  to 
the  whole  number  of  persons  to  be  fed.  The  value  of  wheat, 
then,  for  long  periods,  is  more  stable  than  that  of  gold  and  sil- 
ver. Still  it  is  but  an  approximation  to  the  ideal  standard  of 
value,  which  should  be  absolutely  invariable.  The  corn-rents 
of  lands  in  England  which  are  let  on  very  long  leases  have  de- 
preciated in  value  much  less  than  the  money-rents.  A  still 
nearer  approximation  to  a  fixed  standard  of  value  might  be 
obtained  by  taking  the  average  prices  of  a  dozen  of  the  most 
necessary  articles  in  common  use,  wheat  being  one  of  them, 
and  sheep,  oxen,  hides  of  leather,  wool,  tallow-candles,  soap, 
&c.,  being  added.  In  the  average  of  many,  the  effect  of  acci- 
dental circumstances  in  varying  the  price  of  any  one  of  them 
for  a  few  years  would  be  less  a  source  of  error. 


MONEY.  291 

The  relative  value  of  commodities  at  different  places,  as  well 
as  at  different  times,  cannot  be  determined  with  any  accuracy. 
Owing  to  differences  of  soil  and  climate,  and  the  variety  of 
articles  that  are  used  for  human  sustenance,  the  cost  of  food 
varies  widely  in  different  parts  of  the  globe.  The  value  of  the 
precious  metals  in  different  lands  will  depend  upon  the  extent 
of  the  use  which  is  made  of  them,  and  upon  the  distance  of 
the  mines  that  produce  them,  and  the  ease  or  difficulty  of  com- 
munication with  the  mining  regions.  Perhaps  the  nearest  ap- 
proach to  a  standard  in  such  cases  may  be  found  in  the  value 
of  an  ordinary  day's  labor  of  a  person  of  average  strength  and 
health.  But  it  can  be  easily  shown  that  this  is  only  a  rude 
approximation  to  the  truth.  According  to  Mr.  Senior,  "  the 
average  annual  wages  of  labor  in  Hindostan  are  from  one 
pound  to  two  pounds  troy  of  silver  a  year.  In  England,  they 
are  from  nine  pounds  to  fifteen  pounds  troy.  In  Upper  Can- 
ada and  the  United  States  of  America,  they  are  from  twelve 
pounds  troy  to  twenty  pounds.  Within  the  same  time,  the 
American  laborer  obtains  twelve  times,  and  the  English  laborer 
nine  times,  as  much  silver  as  the  Hindoo."  This  prodigious 
difference  cannot  be  explained  by  the  difference  in  the  value  of 
silver  in  the  three  countries ;  for  owing  to  the  facilities  of  com- 
mercial intercourse  between  them,  and  the  small  cost  of  trans- 
porting silver  from  New  York  or  Liverpool  to  Calcutta,  an 
inequality  of  this  sort  could  not  exist ;  dollars  would  be  trans- 
ported to  Calcutta,  if  they  would  purchase  commodities  of 
much  greater  value  there  than  in  England  or  America.  Nei- 
ther can  the  whole  difference  be  attributed  to  the  only  cause 
of  it  which  is  assigned  by  Mr.  Senior;  namely,  the  greater 
diligence,  energy,  and  skill  with  which  English  and  American 
labor  is  applied,  the  latter  being  assisted,  moreover,  by  superior 
fertility  of  soil  and  greater  extent  of  territory  in  proportion  to 
the  population.  Unquestionably  some  effect  is  thus  produced ; 
but  as  only  rude  labor  is  in  question,  it  would  be  extravagant 
to  assume  that  twelve  Hindoos  can  accomplish  only  as  much 
as  one  American.  The  inequality  must  rather  be  attributed 
in  great  part  to  the  undue  depression  of  the  laboring  classes 
both  in  England  and  Hindostan,  arising  from  the  very  unequal 
distribution  of  wealth  in  the  two  countries,  the  great  bulk  of 
the  population  thus  consisting  of  laborers  for  hire,  who  are 


solely  dependent  upon  wages,  and  are  constantly  competing 
with  each  other  for  employment.  In  Hindostan,  this  effect  is 
very  much  increased,  of  course,  by  the  low  standard  of  living, 
and  the  cheapness  of  rice  and  cotton  cloth,  which,  in  that  cli- 
mate, are  almost  the  only  necessaries  of  life.  In  America,  the 
laborer  must  have  thicker  and  better  clothing,  more  fuel,  a 
more  perfect  shelter  from  the  weather ;  and  he  also  expects  a 
greater  amount,  variety,  and  delicacy  of  food.  He  is  enabled 
to  obtain  these  additional  comforts,  because  the  class  to  which 
he  belongs  is  not  so  numerous  in  proportion  to  the  rest  of  the 
community,  because  there  is  consequently  not  so  much  compe- 
tition for  employment,  and  because,  if  wages  are  not  high 
enough  to  satisfy  him,  he  will  leave  the  class  of  laborers,  and 
become  a  small  landholder,  or  enter  into  trade  of  manufacture 
on  his  own  account. 

Adam  Smith  long  ago  distinguished  the  real  price  of  com- 
modities from  their  nominal  price.  Their  real  price,  he  says, 
is  the  labor  which  it  costs  to  produce  them.  So  it  is ;  but 
when  they  are  once  produced,  their  real  selling  price  is  the 
amount  of  the  necessaries,  conveniences,  or  amusements  of  life 
that  can  be  obtained  in  exchange  for  them.  Every  man  is  rich 
or  poor,  according  to  the  degree  in  which  he  can  afford  to  en- 
joy these  things ;  and  the  real  value  or  price  of  all  the  com- 
modities which  he  possesses,  therefore,  is  the  amount  of  these 
things  which  his  commodities  will  purchase.  On  the  other 
hand,  the  nominal  price  of  his  goods  is  the  money  —  the  num- 
ber of  shillings  or  dollars  —  which  they  will  bring.  This  price 
is  called  nominal,  because  for  two  reasons  it  is  uncertain  in 
amount ;  it  varies  with  the  fluctuations  in  value  of  the  precious 
metals,  arising  from  the  larger  or  smaller  supply  of  them  ob- 
tained from  the  mines,  and  it  varies  with  the  higher  or  lower 
price  of  the  commodities  which  we  wish  to  purchase  with  the 
money.  The  price  may  be  nominally  the  same,  that  is,  it  may 
be  represented  by  the  same  number  of  shillings  or  dollars  ;  but 
it  may  purchase  a  larger  or  smaller  amount  of  commodities 
than  before.  Thus,  wages  and  salaries  have  generally  risen  in 
the  United  States  during  the  last  five  years,  the  amount  of  the 
increase  being,  on  an  average,  at  least  fifteen  per  cent;  but 
the  rise  is  only  nominal,  as  $  115  will  not  now  purchase  any 
more  necessaries  and  comforts  than  could  be  bought  for  $  100 


MONEY.  293 

in  1850.  A  portion  of  the  rise  is  directly  proved  to  be  nomi- 
nal by  the  fact,  that  the  dollar  does  not  now  contain  so  much 
pure  silver  as  it  did  before  1853  by  about  seven  per  cent 
Only  345.6,  instead  of  371.25,  grains  of  pure  silver  are  now 
coined  into  a  dollar. 

It  has  already  been  said,  that  money  is  not  a  sign  of  value, 
because  it  possesses  value  in  itself;  it  is  the  thing  signified. 
It  is  custom  and  the  general  consent  of  the  community,  not 
the  authority  of  government,  nor  the  stamp  upon  the  face  of 
the  coin,  which  causes  money  to  pass  current,  like  other  com- 
modities, and  to  be  received  in  exchange  for  them.     The  stamp 
is  a  convenience,  as  we  have  seen  ;  for  it  saves  the  trouble  of 
weighing  and  assaying  every  piece  which  the  seller  receives. 
But  if  government  should  affix  the  stamp  which  now  belongs 
to  a  silver  dollar  to  a  piece  of  copper  of  similar  shape  and  size, 
and  should  call  this  base  coin  a  dollar,  it  could  not  oblige  the 
people  to  receive  it  as  such,  or  to  give  their  goods  in  exchange 
for  it  at  its  nominal  valuation.     It  is  not  the  stamp,  nor  the 
authority  which  affixes  the  stamp,  but  the  known  value  and 
weight  of  the  metal  which  receives  the  impression,  that  renders 
money  universally  acceptable,  or  gives  it  currency.     In  this 
matter,  as  in  many  others,  the  government  even  of  a  despotic 
state  cannot  govern,  except  by  respecting  the  wishes  and  pref- 
erences of  its  subjects.     If  there  was  good  reason  to  believe 
that  any  other  commodity  —  wheat,  for  instance  —  would  pass 
more  currently  in  exchange  for  the  various  articles  which  are 
needed,  people  would  not  give  their  goods  for  dollars,  but 
would  demand  wheat,  which  would  then  be  invested  with  all 
the  properties  of  money.     And  this,  as  M.  Say  remarks,  has 
sometimes  occurred  in  practice,  when  the  authorized  or  govern- 
ment money  has  consisted  of  paper  which  has  lost  public  con- 
fidence.    The  business  of  coining  money,  or  of  dividing  the 
precious  metals  into  pieces  of  a  convenient  shape  and  size,  and 
affixing  a  convenient  stamp,  is  usually  retained  exclusively  in 
the  hands  of  the  government,  to  secure  the  advantages  of  uni- 
formity, undivided  responsibility,  and   public   confidence.     If 
individuals  were  allowed  to  assume  this  office,  we  should  be 
perplexed  by  a  multitude  of  coins  of  different  denominations, 
and  we  could  never  be  sure  that  the  stamp  correctly  indicated 
the  weight  and  fineness  of  the  metal. 
25* 


Seigniorage  is  a  charge  made  by  government  to  defray  the 
expenses  of  the  mint,  or  the  cost  of  converting  bullion  into 
coined  money.  The  machinery  for  coining  money  is  now 
brought  to  such  perfection,  that  the  actual  expense  of  this  pro- 
cess is  but  trifling ;  it  is  computed  to  amount  to  one  half  of 
one  per  cent  (.005)  for  gold  coins,  and  one  and  a  half  per  cent 
(.015)  for  silver  coins.  Some  governments,  among  which,  till 
recently,  were  those  of  Great  Britain  and  the  United  States, 
performed  this  work  gratuitously,  or  took  upon  themselves  the 
expense  of  the  coinage.  Any  person  might  carry  any  amount 
of  gold  and  silver  bullion  of  the  requisite  fineness  to  the  mint, 
and,  after  the  time  required  for  coining  so  much  metal  had 
elapsed,  or  as  soon  as  the  demands  of  previous  applicants  were 
satisfied,  he  was  entitled  to  receive  an  exactly  equivalent 
weight  of  gold  or  silver  coins.  But  the  time  required  for  the 
process,  or  to  satisfy  previous  comers,  involved  the  loss  of  a 
small  amount  of  interest ;  and  it  was  therefore  provided  in  the 
United  States  law,  that  the  owner  of  the  bullion  might  re- 
ceive an  equivalent  weight  of  gold  and  silver  coins  for  it  imme- 
diately, with  a  deduction  of  one  half  of  one  per  cent,  as  an 
indemnification  to  the  mint  for  the  delay  caused  by  the  coin- 
age. At  present,  however,  the  law  of  1853  provides  that  the 
depositor  of  gold  bullion  shall  always  pay  this  charge  of  one 
half  of  one  per  cent,  and  the  government  reserves  to  itself  the 
privilege  of  issuing  as  much  silver  coin  as  the  public  seem  to 
require,  at  a  profit  of  about  five  per  cent.  The  French  gov- 
ernment levies  a  seigniorage  of  only  5  per  cent  on  gold  and  l£ 
per  cent  on  silver,  —  hardly  enough  to  defray  the  actual  ex- 
pense of  the  process.  Governments  in  former  times  attempted 
to  convert  their  mints  into  sources  of  revenue,  by  charging  a 
seigniorage  of  10  or  15  per  cent.  This  form  of  taxation,  for  it 
is  nothing  else,  would  not  be  practicable  in  our  day,  as  private 
coiners  would  enter  into  competition  with  government,  being 
stimulated  by  the  large  profits  that  would  accrue  from  the 
manufacture  of  good  coin.  Their  operations  would  flood  the 
country  with  a  depreciated  currency ;  the  prices  of  other  com- 
modities would  rise  in  the  same  ratio  with  the  over-valuation 
of  money. 

Some  writers  have  contended  that  the  state  should  not 
make  any  charge  for  coining  money,  but  that  the  expenses  of 


MONEY.  295 

the  mint  should  be  defrayed  by  the  public.  They  have  an  in- 
definite impression  that  the  quantity  of  precious  metals  in  the 
country  might  thus  be  increased,  persons  being  encouraged  to 
bring  them  hither  by  the  opportunity  of  having  them  manufac- 
tured, or  coined,  gratuitously.  Of  course,  this  liberal  offer  of 
the  government  would  tempt  them  to  bring  more  bullion  here 
to  be  coined  ;  the  only  question  is,  whether  it  would  stay  here 
after  it  was  coined.  It  is  difficult  to  see  that  the  country 
would  gain  anything  by  having  fifty  millions  of  dollars  annu- 
ally brought  hither  in  bullion  for  the  sole  purpose  of  receiving 
the  government  stamp,  and  then  immediately  exported  to  Eu- 
rope, without  paying  our  mint  anything  for  the  process,  which 
costs  over  half  a  million  of  dollars.  During  the  five  years 
beginning  in  January,  1850,  the  United  States  mint  and  its 
branches  coined  over  260  millions  of  dollars  in  gold.  Hardly 
one  third  of  this  great  amount  of  coin  was  needed  for  our  own 
use  ;  in  fact,  the  custom-house  returns  during  this  period  show 
that  about  170  millions  in  specie  were  shipped  from  this  coun- 
try to  Europe.  What  possible  advantage  can  there  be  in 
bringing  hither  more  gold  than  we  want,  transporting  it  first 
from  San  Francisco  to  New  York,  thence  to  Philadelphia, 
coining  it  there  gratuitously  at  a  heavy  expense,  carrying  it 
back  to  New  York,  and  then  shipping  it  off  immediately  to 
London  or  Paris,  where  it  will  be  melted  up  as  soon  as  possi- 
ble, and  converted  into  English  or  French  coins  ?  Why  should 
it  not  be  shipped  immediately  to  the  place  where  it  is  needed, 
thus  saving  the  entire  expense  of  coinage,  the  cost  of  much 
unnecessary  transportation,  and  the  interest  on  the  whole 
amount  for  at  least  two  months'  needless  delay  ?  It  must  not 
be  supposed  that  England  will  obtain  the  gold,  either  as  bul- 
lion directly  from  San  Francisco,  or  as  coin  by  way  of  New 
York,  without  rendering  a  full  equivalent  for  it  in  other  com- 
modities ;  or  that  the  United  States  suffer  any  loss  by  allow- 
ing the  miner  to  exchange  his  gold  for  other  goods.  Gold  is 
only  an  article  of  merchandise,  like  copper,  tin,  and  iron ;  and, 
like  them,  it  must  be  sent  to  the  market  where  it  is  most 
wanted,  and  where,  consequently,  it  can  be  sold  to  the  greatest 
advantage.  Would  it  be  good  policy,  in  order  to  increase  the 
stock  of  copper  in  this  country,  to  enact  that  the  pig  metal 
should  be  manufactured  into  sheets,  plates,  and  rods  at  the  ex- 


296  MONEY. 

pense  of  government,  without  charge  to  the  owner,  who  should 
also  receive  a  free  gift  of  the  interest  on  the  whole  value  of  the 
copper  during  the  time  required  for  its  manufacture  ?  Such  a 
law  would  doubtless  bring  all  the  Chilian  copper  hither,  to  be 
put  into  a  form  fit  for  use,  and  England  and  France  would 
then  obtain  their  share  of  it  without  any  charge  for  the  trans- 
formation it  had  undergone.  As  McCulloch  remarks,  "  those 
who  contend  that  the  state  ought  to  defray  the  expense  of  the 
coinage,  might,  with  equal  cogency  of  reasoning,  contend  that 
it  ought  to  defray  the  expense  of  manufacturing  gold  and  sil- 
ver teapots,  vases,  &c.  In  both  cases,  the  value  of  the  raw 
material,  or  bullion,  is  increased  by  the  cost  of  workmanship. 
And  it  is  only  fair  and  reasonable  that  those  who  carry  bullion 
to  the  mints,  as  well  as  those  who  carry  it  to  the  jewellers, 
should  have  to  defray  the  expenses  necessarily  attending  its 
conversion  into  coin." 

"  But  there  are  other  reasons,"  continues  McCulloch,  "  why 
a  seigniorage,  to  this  extent  at  least,  ought  to  be  exacted. 
Wherever  the  expenses  of  coinage  are  defrayed  by  the  state, 
an  ounce  of  coined  gold  or  silver,  and  an  ounce  of  gold  or  sil- 
ver bullion,  must  be  very  nearly  of  the  same  value.  And 
hence,  whenever  it  becomes  profitable  to  export  the  precious 
metals,  coins,  in  the  manufacture  of  which  a  considerable  ex- 
pense has  been  incurred,  are  sent  abroad  indifferently  with 
bullion,"  and  even  in  preference  to  it,  as  the  latter  must  be 
weighed  and  assayed  when  it  reaches  its  place  of  destination, 
while  the  coins  bear  the  evidence  of  their  weight  and  fineness 
on  their  face.  "  Admitting,  however,  that  it  were  possible, 
which  it  most  certainly  is  not,  to  prevent,  or  at  least  materi- 
ally limit,  the  clandestine  exportation  of  coins,  it  is  conceded 
on  all  hands  to  be  quite  nugatory  to  attempt  to  prevent  their 
conversion  into  bullion.  In  this  there  is  almost  no  risk.  And 
the  security  with  which  their  fusion  can  be  effected,  and  the 
trifling  expense  attending  it,  will  always  enable  them  to  be 
melted  down  and  sent  abroad  whenever  there  is  any  unusual 
foreign  demand  for  the  precious  metals.  This  exportation, 
however,  would  either  be  prevented  or  materially  diminished 
by  the  imposition  of  a  seigniorage  or  duty,  equal  to  the  expense 
of  the  coinage.  The  coins,  being  by  this  means  rendered 
more  valuable  than  bullion,  would  be  kept  at  home  in  prefer- 


MONEY.  297 

ence ;  and  if,  as  Dr.  Smith  has  observed,  it  became  necessary 
on  any  emergency  to  export  coins,  they  would,  most  likely,  be 
reimported.  Abroad,  they  would  be  worth  only  so  much  bul- 
lion ;  while  at  home,  they  would  be  worth  this  much,  and  the 
expense  of  coinage  besides.  There  would,  therefore,  be  an 
obvious  inducement  to  bring  them  back,  and  the  supply  of  cur- 
rency would  be  maintained  at  its  proper  level,  without  its 
being  necessary  for  the  mint  to  issue  fresh  coins." 

An  alteration  in  the  relative  value  of  gold  and  silver,  or,  in- 
deed, between  any  other  two  media  of  exchange  which  are 
united  in  one  currency,  produces  immediately  a  marked  effect. 
The  one  which  is  over-valued,  or  of  which  the  nominal  exceeds 
the  real  value,  at  once  displaces  or  pushes  out  the  other,  and 
takes  the  whole  circulation  to  itself.  As  fast,  for  instance,  as 
gold  becomes  depreciated  in  consequence  of  the  influx  of  that 
metal  from  the  deposits  recently  discovered,  silver  will  disap- 
pear, or  cease  to  be  used  as  currency,  if  measures  are  not 
taken  to  obviate  this  effect  by  putting  a  smaller  amount  of  sil- 
ver into  a  dollar.  The  reason  is  obvious.  Suppose  this  depre- 
ciation to  amount  to  only  five  per  cent,  or  that  silver  in  that 
ratio  should  become  more  valuable  than  gold.  Then,  every 
one  who  makes  a  purchase  or  pays  a  debt  in  silver,  pays  five 
per  cent  more  than  if  he  used  gold.  Silver  would  generally  be 
sold,  or  exchanged,  for  gold,  in  order  to  obtain  the  premium, 
or  difference  in  value ;  and  because,  if  used  as  coin,  it  could 
only  pass  at  par  with  gold,  it  would  be  melted  up,  and  devoted 
to  the  other  uses  to  which  it  is  subservient,  —  as  to  the  manu- 
facture of  plate,  —  or  it  would  be  sent  out  of  the  country. 

Hence  the  great  inconvenience  that  is  experienced,  when,  in 
a  country  where  both  specie  and  bank-notes  are  current,  the 
latter  become  depreciated  in  consequence  of  the  failure  of  the 
banks  to  redeem  them  in  specie.  The  immediate  effect  is,  that 
the  smaller  coins,  which  supply  "change,"  as  it  is  called,  at 
once  disappear,  being  gathered  up  by  the  money-changers,  and 
either  melted,  or  sent  out  of  the  country  to  some  place  where 
the  depreciated  notes  will  not  pass  current.  The  only  mode 
of  stemming  this  current  is  for  the  banks  to  restrict  their  issues, 
till  the  necessity  for  having  a  certain  amount  of  value  to  fill 
the  ordinary  channels  of  circulation  raises  the  value  of  the  de- 
preciated notes  again  to  par.  Another  cause  tends  to  increase 


298  MONEY. 

the  drain  of  gold  and  silver  under  such  circumstances.  Money 
being  the  universal  medium  of  exchange,  its  value  operates  re- 
ciprocally against  prices ;  that  is,  as  money  rises  in  value, 
prices  fall ;  and  as  money  is  depreciated,  prices  of  all  other 
commodities  rise.  Of  course,  in  the  latter  case,  goods  are  im- 
ported in  large  quantities,  to  take  advantage  of  this  rise  in 
price.  These  goods  must  be  paid  for,  and  as  they  come  from 
foreign  countries,  where  the  depreciated  money  will  not  pass, 
gold  and  silver  must  be  collected  to  discharge  the  debt.  In 
this  manner,  even  the  smaller  coins  are  gathered  and  sent  off, 
till  it  becomes  impossible  to  obtain  "  change "  for  the  smallest 
bank-note.  The  necessity  of  having  some  money  of  a  small 
denomination  then  gives  currency  to  some  remarkable  substi- 
tutes for  coin.  Omnibus  tickets,  pieces  of  bank-notes,  and 
tokens,  or  "  shin-plasters,"  as  they  are  vulgarly  termed,  —  cer- 
tificates of  value  to  a  small  amount,  issued  by  municipal  au- 
thority, and  receivable  in  payment  for  taxes,  —  all  circulate  as 
money,  and  supply  the  place  of  "  change." 

The  principle,  that  money  which  is  depreciated  in  real  value, 
though  to  a  very  slight  amount,  always  drives  out,  and  takes 
the  place  of,  the  sounder  portion  of  the  currency,  received  a 
remarkable  illustration  from  the  operations  of  the  banks  in 
Massachusetts  about  thirty  years  ago.  Up  to  that  time,  the 
bills  of  the  country  banks  were  redeemed  only  at  their  own 
counters,  in  various  parts  of  the  State.  The  operations  of  trade 
brought  large  amounts  of  their  bills  into  Boston,  where  they 
circulated  as  currency.  But  the  banks  in  Boston  would  not 
receive  them,  either  on  deposit  or  in  payment  of  notes ;  for 
they  could  not  afford  to  sort  them  into  parcels,  and  send  one 
little  parcel  into  Berkshire,  and  another  to  Nantucket,  bringing 
back  from  each  place  a  corresponding  amount  of  coin,  with  all 
the  expense  of  transportation.  These  country  bank  bills,  con- 
sequently, not  being  redeemable  in  the  place  where  they  circu- 
lated, were  naturally  depreciated,  or  became  subject  to 
discount,  in  comparison  with  the  bills  of  the  Boston  banks, 
which  were  redeemed  in  specie  on  the  spot.  The  discount 
was  very  small,  varying  from  one  to  two  per  cent,  according 
to  the  distance  of  the  bank  from  Boston.  What  was  the  con- 
sequence ?  These  depreciated  and  so  far  dishonored  bills 
drove  the  good  Boston  bills  almost  wholly  out  of  the  market, 


MONEY.  299 

and,  so  to  speak,  took  the  circulation  to  themselves.  The  law 
which  I  have  spoken  of,  that  a  depreciated  or  over-valued  me- 
dium of  exchange  will  drive  away  the  sound  currency,  was 
fully  exemplified.  How  this  result  was  effected  can  be  easily 
explained.  Every  merchant  who  had  dealings  with  the  Boston 
banks  laid  aside  or  reserved  all  the  Boston  bank-bills  that  he 
received,  for  the  sake  of  making  deposits  or  paying  Ms  obliga- 
tions at  the  banks.  The  country  bank-bills  that  came  into  his 
hands  he  paid  out  again,  either  in  change  to  his  customers,  or 
in  payment  for  articles  purchased.  Thus  the  depreciated 
country  bank  paper  was  maintained  in  circulation ;  the  good 
bills,  not  subject  to  discount,  were  returned  to  the  banks  as 
soon  as  issued.  Every  one  knows  that  the  profits  of  a  bank, 
other  things  being  equal,  depend  on  the  amount  of  their  paper 
which  they  can  keep  in  circulation.  The  country  banks,  there- 
fore, profited  by  the  dishonor  of  their  paper;  the  Boston  banks 
suffered  by  keeping  up  the  credit  of  their  bills.  This  injustice 
and  loss  could  not  be  tolerated.  Most  of  the  Boston  banks 
entered  into  a  combination,  headed  by  the  Suffolk  Bank,  to 
compel  the  banks  in  the  country  to  make  provision  to  redeem 
their  bills,  not  only  at  their  own  counters,  but  also  in  the  me- 
tropolis, where  often  they  had  a  larger  circulation  than  in  the 
locality  where  they  were  issued.  Each  of  these  banks  was  to 
be  compelled  to  maintain  on  deposit  with  one  of  the  Allied 
Banks,  a  sum  in  specie  large  enough  to  redeem  immediately 
any  amount  of  their  own  notes  which  might  be  offered  to  any 
or  all  the  banks  in  Boston.  Then  the  Allied  Banks  could 
afford  to  receive  country  bank  paper  at  par.  They  would  no 
longer  be  subject  to  discount,  and  would  consequently  keep 
only  their  share  of  the  circulation.  If  any  country  bank  should 
refuse  to  enter  into  this  arrangement,  and  refuse  to  make  the 
specie  deposit  in  Boston,  the  Allied  Banks  would  still  receive 
its  paper  at  par,  till,  having  accumulated  a  large  amount  of  its 
notes,  they  would  suddenly,  without  warning,  cause  the  whole 
sum  to  be  presented  at  once  at  its  counter  for  payment,  a 
measure  which  would  infallibly  break  the  recusant  bank. 

This  was  the  famous  Allied  Bank,  or  Suffolk  Bank  system, 
the  object  of  so  much  discussion 'and  obloquy  at  the  time,  but 
now  so  fully  vindicated,  and  still  in  successful  operation.  It 
was  represented  as  a  high-handed  act  of  oppression,  a  warfare 


300  MONEY. 

of  the  strong  against  the  weak,  of  the  rich  Boston  corporations 
against  their  feeble  but  honest  brethren  in  the  country,  —  an 
attempt  to  compel  the  country  banks  to  redeem  their  paper  in 
two  places  at  once,  and  to  lend  large  sums  in  specie  without 
interest  to  their  oppressors  in  the  metropolis.  But  when  the 
subject  is  fully  understood,  nothing  can  be  clearer  than  the  ab- 
stract justice  and  expediency  of  the  course  then  adopted  and 
still  pursued.  So  great  are  its  advantages  even  to  the  parties 
who  at  first  fancied  themselves  oppressed  by  it,  that  other 
country  banks,  not  within  the  range  of  the  system  as  first  pro- 
posed, have  petitioned  to  be  admitted  into  it.  It  is  both  the 
duty  and  the  interest  of  every  institution  that  issues  bills  to 
serve  as  currency,  to  preserve  these  bills  from  depreciation  in 
every  place  where  they  circulate  to  any  extent.  If,  by  any 
strange  chance  in  the  course  of  trade,  the  bills  of  our  Boston 
banks  should  come  to  circulate  in  London,  strict  justice  and 
sound  policy  would  require  them  to  make  provision  to  redeem 
their  paper  in  that  city. 

But  this  is  a  digression,  which  I  have  entered  into  only  for 
the  purpose  of  explaining  the  manner  in  which  two  media  of 
exchange,  like  gold  and  silver,  united  in  the  same  currency, 
affect  each  other.  The  government  at  any  time  may  cause 
either  to  predominate,  or  nearly  crowd  the  other  out  of  circula- 
tion, by  causing  the  preferred  metal  to  be  a  little  overrated  in 
its  relation  to  the  other.  It  is  made  legal  tender  at  a  rate  a 
little  above  its  market  value  as  bullion ;  or  what  would  amount 
to  the  same  thing,  the  metal  which  the  government  desires  to 
drive  out  of  circulation  is  made  legal  tender  at  a  rate  a  little 
below  its  market  value.  Till  within  five  years,  France,  pre- 
ferring silver,  underrated  gold  coin  a  little,  so  that  silver  circu- 
lated almost  exclusively  in  that  country,  and  gold  coin  could 
be  obtained  there  only  by  paying  a  little  premium.  In  Great 
Britain,  on  the  other  hand,  till  1816,  silver  was  underrated  in 
proportion  to  gold,  so  that  the  latter  metal  circulated  by  prefer- 
ence, except  in  change  for  small  sums ;  and  though,  at  the 
period  spoken  of,  this  state  of  things  was  reversed,  yet  in  order 
to  prevent  the  overvalued  silver  currency  from  driving  the  gold 
out  of  the  country,  it  was  enacted  that  silver  should  be  legal 
tender  to  the  extent  of  forty  shillings  only,  and  private  persons 
were  prohibited  from  coining  it.  Silver,  consequently,  in 


MONEY.  301 

Great  Britain  occupies  merely  a  subordinate  place  in  the  cur- 
rency, just  as  copper  does  in  that  country  and  elsewhere.  In 
the  United  States,  till  the  Gold  Bill  of  1834  was  passed,  gold 
was  underrated,  and  therefore  had  disappeared  from  the  circu- 
lation, —  the  product  even  of  our  own  gold  mines  in  Carolina 
and  Georgia  being  sent  to  England  for  coinage.  To  remedy 
this  evil,  the  Gold  Bill  was  passed,  requiring  the  eagle,  which 
was  rated  at  ten  silver  dollars,  to  contain  only  232  grains  of 
pure  gold,  instead  of  247,  which  were  formerly  put  into  it.  Of 
course,  23.2  grains  of  gold,  or  371.25  grains  of  silver,  passed 
indifferently  for  one  American  dollar ;  these  two  numbers  are 
in  the  relation  to  each  other  very  nearly  of  one  to  sixteen, 
which  was,  up  to  1850,  about  the  true  relation  of  the  market 
values  of  the  two  metals ;  and  they  therefore  circulated  indif- 
ferently in  this  country,  till  the  discoveries  in  California  and 
Australia  again  changed  their  relation  to  each  other. 

Not  many  years  ago,  our  small-coin  currency  was  flooded 
with  old  Spanish  pistareens,  as  they  were  termed,  —  a  much 
worn  coin,  worth  about  18|  cents.  They  had  come  into  circu- 
lation as  of  the  value  of  20  cents ;  and  in  consequence  of  this 
over-valuation,  amounting  to  nearly  8  per  cent,  nearly  all  of 
these  coins  which  were  in  existence  found  their  way  hither. 
To  drive  them  out,  it  was  resolved  at  the  post-offices  and  the 
banks,  that  they  should  be  received  only  at  the  valuation  of  six 
to  a  dollar,  or  16§  cents,  —  a  point  as  much  below  their  true 
value  as  the  former  estimate  had  been  above  it.  The  effect 
was  almost  instantaneous ;  the  coins  were  either  melted  up  or 
sent  out  of  the  country,  and  a  pistareen  is  now  rarely  to  be 
seen.  Whenever  it  is  judged  expedient  to  drive  out  the  old 
Spanish  eighths  and  quarters  of  a  dollar,  most  of  which  have 
lost  from  6  to  8  per  cent  of  their  value  by  abrasion,  a  similar 
course  must  be  adopted. 

The  precious  metals  have  an  inherent  value  of  their  own, 
wholly  apart  from  their  use  as  money.  They  are  used  in  the 
arts,  in  fabricating  plate  and  jewelry,  and  thus  bear  a  price  in 
the  market  like  any  other  commodity,  founded  on  the  uses 
which  they  subserve,  and  the  difficulty  of  obtaining  them,  or 
the  amount  of  labor  which  must  be  expended  for  then-  produc- 
tion. It  is  a  knowledge  of  this  fact,  that  they  have  an  inde- 
pendent value,  less  liable  to  fluctuation  than  that  of  any  other 
26 


302  MONEY. 

commodity,  which  gives  them  currency  as  money,  which 
causes  individuals  to  receive  them  with  confidence  that  their 
value  will  not  be  depreciated  while  in  their  hands.  And  it  is 
important  to  observe,  that  their  adoption  to  serve  as  money 
considerably  augments  their  intrinsic  value,  or  their  worth  as 
an  article  of  commerce.  It  is  equivalent  to  the  discovery  of  a 
new  utility  of  these  metals,  and  a  consequent  enlargement  of 
the  demand  for  them,  while  the  supply  is  left  as  it  was  before. 
The  employment  of  a  great  part,  the  half,  or  perhaps  three 
fourths,  of  the  whole  stock  of  them  on  hand,  as  money,  neces- 
sarily renders  the  whole  more  scarce  and  dear.  In  a  word,  the 
employment  of  the  precious  metals  in  manufacture  makes 
them  scarcer  and  dearer  as  money ;  and  in  like  manner,  their 
employment  as  money  makes  them  scarcer  and  dearer  in  man- 
ufacture. I  dwell  upon  this  point,  because,  when  we  once  see 
that  the  precious  metals  derive  a  part  of  the  value  with  which 
they  are  invested  solely  from  their  use  as  money,  we  shall  be 
better  prepared  to  admit,  what  I  shall  afterwards  have  occasion 
to  prove,  that  other  articles,  of  little  or  no  intrinsic  value,  may 
be  used  as  money,  and,  in  consequence  solely  of  such  use,  may 
receive  a  very  high  value. 

There  is  a  larger  demand  for  silver  in  the  arts  and  for  pur- 
poses of  ornament,  than  for  gold ;  and  this  larger  consumption 
of  silver  makes  its  value  higher  in  comparison  with  gold  than 
it  would  be  if  their  respective  values  were  determined  solely 
by  the  comparative  quantity  of  each  which  is  produced  or  can 
be  obtained.  Silver  plate,  in  greater  or  less  quantity,  is  in 
almost  universal  use ;  gold  plate,  from  its  greater  expensive- 
ness,  is  hardly  at  all  in  use,  except  by  crowned  heads,  or  per- 
sons of  immense  fortunes.  Silver-plated  ware  is  also  manu- 
factured in  great  quantities,  while  comparatively  few  articles 
are  coated  with  gold,  except  in  the  form  of  gold-leaf,  which  is 
very  cheap  on  account  of  its  marvellous  tenuity  and  fragility. 
Silver  spoons  are  to  be  found  in  almost  every  house ;  and  the 
consumption  of  this  metal  for  watches  and  trinkets  is  also  very 
great.  The  consequence  is,  that,  though  45  times  more  silver 
than  gold  existed,  and  was  annually  produced  from  the  mines, 
the  value  of  silver  was  to  that  of  gold,  not  as  45  to  1,  but  as 
16  to  1.  Its  cheapness  enlarged  its  use ;  and  the  extensive- 
ness  of  its  use,  on  the  other  hand,  counteracted  its  cheapness, 
or  rendered  it  dearer. 


MONEY.  303 

If  we  apply  this  principle  to  the  depreciation  of  the  value  of 
gold,  which  is  now  taking  place  on  account  of  the  recently  en- 
larged supplies  of  that  metal,  we  see  at  once  a  new  limit  to 
that  depreciation,  or  a  reason  why  it  cannot  go  so  far  as  it  oth- 
erwise would.  To  double  the  present  amount  of  gold  bullion 
in  the  market  would  not  be  to  sink  gold  coin  to  half  of  its 
present  value.  As  its  value  fell,  the  use  or  consumption  of  it 
would  be  greatly  increased.  Gold  plate  would  become  fash- 
ionable, gold  trinkets  would  be  far  more  common,  and  gold 
would  even  be  applied  to  certain  purposes  in  the  arts,  for 
which  it  is  admirably  fitted  by  its  ductility,  great  specific 
gravity,  and  power  of  resisting  oxidation  or  corrosion,  —  uses 
from  which  it  is  now  excluded  by  its  high  cost.  The  discov- 
ery of  America  increased  the  supply  of  gold  and  silver  tenfold ; 
but  they  were  thereby  reduced,  not  to  one  tenth,  but  only  to 
one  fourth,  of  their  former  value. 

The  most  important  quality  of  money,  when  considered  as 
an  engine  of  commerce,  and  even  as  a  means  of  civilization,  is 
its  stability  of  value.  If  money  is  depreciated  in  value,  every 
creditor  in  the  community,  during  the  time  of  its  depreciation, 
suffers  loss  and  wrong  to  the  full  extent  of  the  fall  in  value; 
he  has  lent,  we  will  suppose,  a  thousand  dollars,  at  a  time 
when  that  sum  was  equivalent  to  two  hundred  barrels  of  flour, 
or  a  proportionate  amount  of  any  other  commodity ;  and  he  is 
paid  when  the  sum  will  no  longer  purchase  more  than  one 
hundred  and  fifty  barrels:  and  what  he  unjustly  loses,  his 
debtor,  of  course,  unjustly  gains.  If  the  value  of  money  rises, 
this  process  is  reversed ;  the  creditor  now  gains,  and  the  debtor 
loses,  both  in  proportion  to  the  enhancement  of  value.  In  for- 
mer centuries,  governments,  when  heavily  in  debt,  often  had 
recourse  to  a  depreciation  of  the  coin,  as  a  means  of  relieving 
themselves  from  their  embarrassments.  It  was  beyond  their 
power  to  effect  an  actual  change  in  the  market  value  of  gold 
and  silver  bullion,  such  as  would  result  from  an  enlarged  or 
diminished  supply  of  these  metals  from  the  mines.  But  their 
debts  were  contracted  under  a  certain  denomination,  just  as  a 
debtor  at  the  present  day  is  bound  to  pay  a  certain  number  of 
dollars,  under  an  implied,  but  not  an  express  agreement,  that 
the  dollar  shall  retain  its  present,  or  rather  its  former,  amount 
of  metal,  —  that  is,  371|  grains  of  silver,  or  23.2  grains  of 


304  MONEY. 

gold.*  If  the  government  should  decree  that  the  dollar  in  fu- 
ture should  contain  only  186  grains,  he  might  nominally 
release  himself  from  his  debt  by  paying  only  half  of  what  he 
had  really  contracted  to  pay.  This  is  a  very  rude  expedient,  — 
an  actual  license  of  universal  bankruptcy,  all  claims  being  re- 
leased on  a  payment  of  50  per  cent.  It  has  not  been  tried  in 
modern  times,  for  even  the  courts  of  law  would  afford  a  rem- 
edy against  so  gross  a  fraud.  But  it  was  frequently  resorted 
to  in  the  Middle  Ages,  and  a  curious  monument  of  the  fact  is 
preserved  to  us  in  the  names  of  certain  coins.  The  English 
pound  sterling,  in  the  time  of  Edward  I.  contained  a  pound- 
weight  of  silver  of  known  fineness ;  and  the  English  penny 
was  then  a  real  pennyweight  of  silver,  —  the  twentieth  part  of 
an  ounce,  or  the  two  hundred  and  fortieth  part  of  a  pound. 
Even  the  word  shilling  seems  to  have  been  originally  a  denom- 
ination of  weight,  or  another  name  for  an  ounce.  By  successive 
depreciations  of  the  coin,  the  pound,  shilling  or  ounce,  and 
pennyweight  of  money  have  come  to  contain  only  a  third  part 
of  the  silver  which  their  names  indicate.  A  pound  sterling 
contains  less  than  four  ounces  of  silver.  The  Scotch  pound 
has  only  a  thirty-sixth  part,  and  the  French  Hire,  or  pound, 
only  a  sixty-sixth  part,  of  their  original  weight  of  silver. 

This  mode  of  depreciating  the  metallic  currency  was  called, 
by  a  singular  abuse  of  language,  "  raising  the  standard."  It 
has  not  been  tried  in  modern  times,  as  I  have  said,  because  it 
is  so  palpable  a  fraud  that  the  courts  of  law  would  probably 
afford  a  remedy  against  it.  But  these  courts  give  no  redress, 
as  we  all  know,  against  a  depreciation  of  paper  currency  pre- 
cisely similar  in  its  character  and  effects.  In  May,  1837,  all 
the  banks  in  the  United  States  suspended  specie  payments ; 
and  the  immediate  consequence  was  a  depreciation  of  their 
paper,  or  a  rise  of  specie  to  a  premium,  differing  in  amount  in 
the  various  States  according  to  the  various  degrees  of  solvency 
of  their  respective  banks ;  but  of  which  the  average  for  the 
whole  country  was  at  least  as  high  as  12  per  cent.  The  natu- 
ral consequence  followed,  that  all  specie  disappeared  from  the 
circulation,  and  all  obligations  were  discharged  in  paper, — 


*  The  silver  in  the  dollar  was  diminished  in  1853  to  345.6  grains,  for  reasons  to 
be  explained  hereafter. 


MONEY.  305 

that  is,  by  the  payment  of  88  cents  on  the  dollar.  If  a  person 
lent  $  1,000  in  April  of  that  year,  to  be  repaid  in  June,  he  lent 
what  was  in  fact  1,000  silver  dollars,  each  worth  100  cents,  and 
he  received  back  only  1,000  paper  dollars,  each  worth  88  cents. 
This  event,  of  course,  was  an  act  of  national  and  universal 
bankruptcy ;  every  creditor  received  only  about  seven  eighths 
of  what  was  due  to  him,  for  an  entire  discharge  of  his  debt. 
The  government  of  the  United  States  alone,  in  the  exercise  of 
its  prerogatives  as  the  sovereign,  refused  to  submit  to  this  loss, 
and  obliged  all  its  debtors  to  pay  specie;  —  an  act  of  strict 
justice,  it  is  true,  but  one  which  caused  it  a  greater  loss  by  bad 
debts  than  it  would  have  suffered  by  consenting  to  share  the 
misfortune  equally  with  the  community ;  and  which  was  far- 
ther so  unpopular,  that  it  was  the  chief  cause  of  the  overthrow 
of  the  then  existing  administration. 

This  general  bankruptcy  was  not  the  only  evil,  or  the  only 
injustice,  caused  by  the  suspension  of  the  banks.  The  com- 
munity had  to  undergo  another  shock  when  specie  payments 
were  resumed,  though  the  burden  was  reversed  in  reference  to 
the  class  of  sufferers.  The  debtors  now  suffered  wrong,  the 
creditors  were  unjustly  benefited.  If,  for  instance,  a  man  ob- 
tained a  loan  of  $  1,000  while  the  depreciation  was  at  its 
height,  he  received  only  what  was  equivalent  to  one  thou- 
sand times  88  cents  in  specie ;  and  if  the  day  of  payment  came 
after  the  resumption,  he  was  obliged  to  pay  1,000  times  100 
cents.  But  the  88  cents  in  one  case,  and  the  100  cents  in  the 
other,  being  both  called  a  dollar,  —  so  great  is  the  deceptive 
power  of  mere  names,  —  most  persons  probably  were  not  sen- 
sible of  the  wrong  they  actually  suffered.  Yet  to  suppose  that 
the  dollar  was  the  same  thing  in  the  two  cases,  would  be  as 
great  an  error  as  to  imagine  that  the  pound  troy  weight  of 
silver  was  the  same  thing  as  the  pound  sterling  of  modern 
times. 


26 


306  THE    DISTRIBUTION    OF    GOLD    AND    SILVER: 


CHAPTER    XIX. 

THE  DISTRIBUTION  OF  THE  PRECIOUS  METALS  THROUGHOUT  THE 
WORLD  :  SUBSTITUTES  FOR  MONEY  :  BILLS  OF  EXCHANGE  :  THE 
COURSE  OF  INTERNATIONAL  TRADE. 

METALLIC  currency,  or  money  properly  so  called,  it  was 
shown  in  the  last  chapter,  is  a  safe,  but  a  costly,  means  of 
effecting  exchanges.  It  is  safe,  because  it  is  not  subject  to 
such  ruinous  fluctuations  of  value  as  took  place  in  the  paper 
currency  of  this  country  between  1836  and  1843.  It  is  costly, 
because  the  expense  of  keeping  it  in  repair,  and  the  loss  of 
profits  on  so  large  an  amount  of  what  may  be  called  "  dead 
capital,"  amount,  in  this  country,  to  at  least  eleven  per  cent. 
It  then  becomes  important  to  know  what  are  the  substitutes 
for  its  use,  —  substitutes  which  we  may  expect  to  find  less  safe, 
but  also  far  less  expensive,  than  metallic  money.  And  as  a 
preliminary  to  this  inquiry,  we  wish  to  know  how  much  cur- 
rency is  needed  in  each  country,  —  or  rather,  since  its  numer- 
ical amount  cannot  be  ascertained  with  any  precision,  how  the 
quantity  needed  is  affected  by  the  growth  of  the  population, 
the  extension  of  commerce,  the  progress  of  opulence,  and  the 
general  state  of  civilization  ;  and  also,  by  what  law  the  whole 
quantity  now  in  existence  is  distributed  among  the  various  na- 
tions of  the  earth,  and  in  what  way  it  preserves  its  equilibrium 
among  them.  To  these  inquiries  the  present  chapter  will  be 
devoted. 

In  every  exchange,  the  two  values  which  are  exchanged  for 
each  other  are  supposed  to  be  equal.  Every  exchange  is  a 
barter  of  a  quantity  of  merchandise  for  a  certain  sum  of  money 
which  is  its  equivalent.  But  it  does  not  follow  that  there 
must  be  in  the  community  as  much  money  as  there  is  mer- 
chandise ;  for  as  the  money  is  not  consumed  by  effecting  this 
exchange,  it  is  ready  immediately  to  effect  another  purchase. 
The  same  piece  of  money  may  be  exchanged  successively 
for  any  number  of  articles  of  merchandise  of  the  same 
value ;  or,  in  other  words,  any  sum  of  money  can  purchase 


SUBSTITUTES    FOR   MONEY.  307 

successively  a  quantity   of  merchandise  worth   an  infinitely 
larger  sum. 

The  circulation  of  money  and  of  merchandise  bears  some 
analogy  to  the  momentum  spoken  of  in  physical  science,  which 
is  composed  of  the  velocity  multiplied  by  the  mass ;  the  mo- 
menta are  equal,  though  the  velocity  should  be  increased  ten- 
fold, provided  that  the  mass  is  but  one  tenth  part  as  great 
So,  also,  the  momentum  of  wealth  is  its  value  multiplied  by 
the  rapidity  of  its  circulation.  As  money  circulates  far  more 
rapidly  than  merchandise,  it  is  evident  that  (the  number  of 
exchanges  on  both  sides  being  equal)  there  must  necessarily 
be  less  value  in  the  money  than  in  the  merchandise,  and  as 
much  less  as  the  circulation  of  the  money  is  more  rapid  than 
that  of  the  merchandise.  If  the  value  of  the  merchandise 
which  changes  hands  in  a  country  in  the  course  of  a  year 
amounts  to  a  thousand  millions,  and  the  circulation  of  the 
money  is  ten  times  as  quick  as  that  of  the  merchandise,  a 
hundred  millions  of  money  will  effect  all  the  exchanges.  Let 
the  quickness  of  the  money  circulation  be  doubled,  and  fifty 
millions  will  suffice. 

Mr.  J.  S.  Mill  has  stated  this  point  very  clearly.  "  If  we  as- 
sume the  quantity  of  goods  on  sale,  and  the  number  of  times 
those  goods  are  resold,  to  be  fixed  quantities,  the  value  of 
money  will  depend  upon  its  quantity,  together  with  the  aver- 
age number  of  times  that  each  piece  changes  hands  in  the  pro- 
cess. The  whole  of  the  goods  sold  (counting  each  resale  of 
the  same  goods  as  so  much  added  to  the  goods)  have  been 
exchanged  for  the  whole  of  the  money,  multiplied  by  the  num- 
ber of  purchases  made  on  the  average  by  each  piece.  Conse- 
quently, the  amount  of  goods  and  of  transactions  being  the 
same,  the  value  of  money  is  inversely  as  its  quantity  multi- 
plied by  what  is  called  the  rapidity  of  circulation.  And  the 
quantity  of  money  in  circulation  is  equal  to  the  money  value 
of  all  the  goods  sold  [including  all  the  resales  as  additional 
goods],  divided  by  the  number  which  expresses  the  rapidity  of 
circulation." 

Stating  the  matter  algebraically,  we  have 
g  s  =  m  r ; 

where  g  =  quantity  of  goods  on  sale ; 

s  =  number  of  times  the  goods  are  resold ; 


308  THE    DISTRIBUTION    OF    GOLD    AND    SILVER : 

m  =  quantity  of  money  in  circulation  ; 


r 


number  of  purchases  effected  by  each  piece  of  money. 
Of  course,  any  three  of  these  quantities  being  given,  the  fourth 
can  be  deduced  from  them.     Thus, 


which  is  the  principle  just  enunciated.     It  is  also  evident,  that 
the  value  of  money  will  be  inversely  as  its  quantity  ;  for  if  we 
suppose  the  quantity  of  money  to  be  doubled,  we  still  have 
gs  =  2mr; 


whence, 

that  is,  2  m  is  worth  only  the  same  value  which  was  formerly 

represented  by  m. 

This  calculation,  however,  excludes  all  exchanges  that  are 
directly  effected  by  barter,  or  into  which  money  does  not  enter  ; 
and  these,  as  we  shall  afterwards  see,  really  constitute  a  large 
part  of  mercantile  transactions.  The  formula  represents  only 
money  purchases.  Direct  exchange  of  one  commodity  for  an- 
other, by  the  process  vulgarly  called  "  swopping,"  is  evidently 
not  affected  by  any  valuation,  however  arbitrary,  of  those  com- 
modities in  money  ;  though  the  two  are  usually  represented  in 
money,  at  the  current  market  price,  for  convenience  of  calcula- 
tion and  intermixture  with  other  accounts. 

"  The  phrase,  '  rapidity  of  circulation,'  "  continues  Mr.  Mill, 
"  requires  some  comment.  It  must  not  be  understood  to  mean, 
the  number  of  purchases  made  by  each  piece  of  money  in  a 
given  time.  Time  is  not  the  thing  to  be  considered.  The 
state  of  society  may  be  such,  that  each  piece  of  money  hardly 
performs  more  than  one  purchase  in  a  year  ;  but  if  this  arises 
from  the  small  number  of  transactions,  —  from  the  small 
amount  of  business  done,  the  want  of  activity  in  traffic,  or  be- 
cause what  traffic  there  is  mostly  takes  place  by  barter,  —  it 
constitutes  no  reason  why  prices  should  be  lower,  or  the  value 
of  money  higher.  The  essential  point  is,  not  how  often  the 
same  money  changes  hands  in  a  given  time,  but  how  often  it 
changes  hands  in  order  to  perform  a  given  amount  of  traffic. 
We  must  compare  the  number  of  purchases  made  by  the  mon- 
ey in  a  given  time,  not  with  the  time  itself,  but  with  the  goods 
sold  in  that  same  time.  If  each  piece  of  money  changes  hands 


SUBSTITUTES    FOR    MONEY.  309 

on  an  average  ten  times  while  goods  are  sold  to  the  value  of  a 
million  sterling,  it  is  evident  that  the  money  required  to  circu- 
late those  goods  is  <£  100,000.  And  conversely,  if  the  money 
in  circulation  is  £  100,000,  and  each  piece  changes  hands  by 
the  purchase  of  goods  ten  times  in  a  month,  the  sales  of  goods 
for  money  which  take  place  every  month  must  amount  on  the 
average  to  <£  1,000,000. 

"  Rapidity  of  circulation  being  a  phrase  so  ill  adapted  to  ex- 
press the  only  thing  which  it  is  of  any  importance  to  express 
by  it,  and  having  a  tendency  to  confuse  the  subject  by  sug- 
gesting a  meaning  extremely  different  from  the  one  intended, 
it  would  be  a  good  thing  if  the  phrase  could  be  got  rid  of,  and 
another  substituted,  more  directly  significant  of  the  idea  meant 
to  be  conveyed.  Some  such  expression  as  '  the  efficiency  of 
money,'  though  not  unexceptionable,  would  do  better ;  as  it 
would  point  attention  to  the  quantity  of  work  done,  without 
suggesting  the  idea  of  estimating  it  by  time.  Until  an  appro- 
priate term  can  be  devised,  we  must  be  content  to  express  the 
idea  by  the  circumlocution  which  alone  conveys  it  adequately, 
namely,  the  average  number  of  purchases  made  by  each  piece  in 
order  to  effect  a  given  pecuniary  amount  of  transactions" 

As  a  nation  increases  in  opulence,  the  value  of  the  merchan- 
dise it  circulates  also  increases ;  and  consequently  it  has  need 
of  more  money.  But  this  need  does  not  increase  in  the  same 
proportion  with  its  wealth.  In  rich  countries,  the  activity  of 
the  circulation  enables  the  people  to  effect  then*  exchanges 
with  a  smaller  quantity  of  money.  A  given  sum  will  suffice 
for  ten  exchanges,  when  in  a  poor  country  it  might  have 
effected  but  one.  Besides,  it  is  in  wealthy  countries  that 
credit  most  easily  takes  the  place  of  money.  Not  only  bank- 
bills,  but  all  sorts  of  private  obligations,  —  drafts,  bills  of  ex- 
change, sales  on  credit,  and  clearances,  (terms  which  will 
afterwards  be  explained,)  —  all  become  substitutes  for  money. 

But  confining  ourselves  for  the  present  to  the  distribution  of 
coined  money  among  the  various  nations  of  the  earth,  I  ob- 
serve, that  the  amount  which  is  needed  by  any  country,  and 
which  actually  circulates  among  its  inhabitants,  does  not  de- 
pend in  the  least  upon  the  quantity  which  the  government  of 
that  country  sees  fit  to  coin,  or  upon  the  activity  of  its  mint. 
International  exchanges  bring  the  coin  of  one  country  to  circu- 


310  THE    DISTRIBUTION    OF    GOLD    AND    SILVER: 

late  in  another;  sometimes  it  is  melted  up  and  coined  over 
again  for  this  purpose,  sometimes  it  circulates,  or  is  held  in 
reserve,  under  its  original  stamp.  Often  the  larger  portion  of 
the  specie  reserves  held  by  our  banks  consists  of  English 
sovereigns.  During  the  sixteenth  and  seventeenth  centuries, 
Spain  and  the  Spanish  colonies  had  the  first  coinage  of  nearly 
all  the  precious  metals  which  found  their  way  into  circulation 
in  Europe,  simply  because  Spain  owned  the  most  produc- 
tive silver  and  gold  mines.  The  value  of  the  money  annually 
coined  in  our  own  United  States  mints,  from  1841  to  1846, 
varied  from  two  millions  to  eleven  millions.  In  1847,  it  rose 
to  nearly  twenty-three  millions,  much  English  coin  and  bullion 
being  brought  hither  in  payment  for  the  immense  quantity  of 
bread-stuffs  which  we  exported  that  year,  because  the  crops  in 
Europe  were  deficient ;  in  the  following  year,  it  fell  again  to 
about  six  millions.  From  1850  to  1854,  the  influx  of  Califor- 
nian  gold  raised  it  to  an  average  of  fifty  or  sixty  millions  an- 
nually. Of  course,  the  quantity  actually  in  circulation  could 
not  have  varied  thus  rapidly  and  largely.  The  fact  is,  —  and 
I  crave  attention  to  the  statement  as  an  important  and  preg- 
nant one,  —  that  the  quantity  of  the  precious  metals  retained 
in  circulation  as  coin,  for  the  whole  world,  regulates  itself 
through  the  aggregate  amount  of  money  actually  needed  by 
all  mankind  to  effect  their  exchanges,  —  regulates  itself  wholly 
irrespective  of  the  efforts  made  by  one  government,  or  by  all 
governments,  to  increase  or  diminish  its  amount.  If  more 
money  is  coined  than  is  thus  needed  to  supply  the  aggregate 
want,  it  will  infallibly  be  melted  up  again ;  if  the  mints  are 
not  active  enough  to  supply  this  want,  a  pressure  will  be  felt 
somewhere,  which  will  compel  them  to  quicken  their  action,  or 
private  coiners  will  somewhere  take  the  business  out  of  their 
hands. 

And  it  is  just  so  with  the  distribution  of  this  aggregate 
amount  of  coin  among  various  countries.  No  one  nation  can, 
either  by  the  efforts  of  its  government,  by  its  laws,  or  by  con- 
cert among  its  individual  members,  increase  or  diminish  the 
quantity  of  money  that  circulates  among  them  ;  —  by  no  efforts 
directly  looking  towards  this  end,  I  should  say;  for,  unques- 
tionably, a  tyrannical  or  foolish  government,  or  an  unwise 
course  of  legislation,  may  paralyze  the  energies  of  commerce, 


SUBSTITUTES    FOR   MONEY.  311 

root  out  manufactures,  or  blast  the  hopes  of  the  agriculturist, 
and  thus  lessen  the  amount  of  money  needed,  by  destroying 
many  of  the  enterprises  and  exchanges  in  which  money  is  em- 
ployed. But  no  laws  prohibiting  the  exportation  of  specie,  or 
making  it  penal  to  melt  up  the  current  coin,  —  no  laws  de- 
signed to  foster  one  branch  of  trade  more  than  another,  under 
the  belief  that  this  particular  traffic  brings  more  coined  money 
into  the  country  than  any  other,  —  no  such  laws,  I  say,  can 
ever  permanently  increase  the  amount  of  money  in  circulation. 
The  currency  distributes  itself  among  different  nations,  in  due 
proportion  to  the  circumstances  of  each,  just  as  easily  as  water 
finds  its  level  in  a  pond ;  and  such  legislation  as  I  have  just 
adverted  to  can  have  no  more  effect  upon  such  distribution, 
than  would  be  produced  upon  the  level  of  the  pond  by  dipping 
up  water  in  a  bucket  from  one  part  and  pouring  it  into  an- 
other. 

It  is  possible,  to  be  sure,  to  displace  a  portion,  or  even  the 
larger  part,  of  the  specie  currency,  and  make  paper  currency,  or 
some  other  substitute,  take  its  place ;  and  the  specie  thus  dis- 
placed will  either  go  abroad  or  be  melted  up.  But  the  total 
amount  of  the  currency  will  remain  just  as  before ;  the  value 
of  the  paper  and  the  precious  metals  taken  together  will  be 
just  what  the  specie  alone  would  be,  if  paper  were  not  used. 
Suppose,  for  instance,  that  the  currency  of  the  United  States 
consists  of  200  millions  of  dollars,  of  which  three  fifths  are 
paper  money,  and  two  fifths  are  specie.  We  might  destroy 
all  the  paper  portion,  and  specie  enough  would  flow  in  from 
abroad  to  make  up  the  currency  to  200  millions  again ;  or  we 
might  add  so  much  to  the  paper,  that  all,  or  nearly  all,  the 
specie  would  leave  us  and  go  abroad.  But  the  impassable 
limit  to  the  real  value  of  the  paper  issued  would  even  then  be 
200  millions  of  dollars.  If  300  millions  of  paper  dollars  were 
stamped  and  issued,  the  inevitable  consequence  would  be,  that 
it  would  sink  in  value,  or  become  subject  to  a  discount  of  one 
third,  so  that  the  aggregate  real  value  would  remain  as  before. 

This  self-adjusting  power  of  the  currency  is  a  fact  which  it 
is  difficult  to  establish  directly,  because  the  amount  actually 
needed  varies  from  day  to  day  with  the  varying  opulence  of 
the  country  and  the  varying  activity  of  commerce  and  circula- 
tion. If  200  millions  be  the  amount  now  wanted,  220  millions 


312  THE    DISTRIBUTION    OF    GOLD    AND    SILVER: 

may  be  needed  next  month,  as  a  consequence  either  of  our  in- 
creased wealth  within  that  time,  or  of  a  check  to  our  prosper- 
ity and  a  diminished  activity  of  circulation,  growing  out  of  a 
general  want  of  confidence,  and  a  disposition  on  the  part  both 
of  banks  and  of  individuals  to  hold  larger  sums  in  reserve. 
The  practice  of  hoarding,  though  most  common  in  the  Asiatic 
states,  where  it  is  a  precaution  taken  by  individuals  against 
arbitrary  exactions  by  a  despotic  government,  is  not  unknown 
in  the  most  civilized  communities  of  Europe  and  America.  In 
times  even  of  general  prosperity  and  quiet,  many  persons  of 
the  lower  and  more  ignorant  classes  keep  by  them  a  little  fund 
in  specie,  stored  away,  perhaps,  in  an  old  stocking,  as  a  pre- 
caution against  a  rainy  day  ;  and  though  the  establishment  of 
Savings'  Banks  has  greatly  diminished  the  number  and  amount 
of  these  little  hoards,  there  are  still  enough  of  them,  in  the  ag- 
gregate, to  keep  a  considerable  portion  of  the  metallic  cur- 
rency, as  it  were,  in  a  state  of  abeyance.  If  the  currency  be  a 
mixed  one  of  paper  and  specie,  and  if  some  event  should  hap- 
pen to  disturb  public  confidence,  such  as  the  bursting  of  a 
commercial  bubble,  or  the  discovered  mismanagement  of  two 
or  three  banks,  then  commences  what  is  called  "  a  run  upon 
the  banks  "  generally,  the  effect  of  which  is  greatly  to  increase 
the  number  and  amount  of  these  hoards.  To  provide  against 
the  possible  recurrence  of  such  panics,  the  banks  are  obliged  to 
keep  much  larger  amounts  of  specie  in  reserve  than  would  suf- 
fice for  their  ordinary  transactions.  The  quantity  of  specie 
required  as  a  basis  and  security  for  the  circulation  of  the  banks 
is  like  the  thickness  of  timber  and  planking  in  the  sides  of  a 
ship  ;  it  must  suffice  not  merely  for  ordinary  fair  weather,  but 
for  possible  storms  and  squalls,  and  now  and  then  a  sand-bank. 
The  gold  and  silver  coin  thus  stored  up  by  banks  and  individ- 
uals is  not  a  part  of  the  circulation  proper ;  the  whole  currency 
of  the  country  may  be  divided  into  two  portions,  only  one  of 
which  is  active,  or  is  daily  employed  in  effecting  exchanges; 
the  other  for  a  time  is  latent.  This  last  portion  is  somewhat 
arbitrary  in  amount,  depending  upon  the  character  of  the  peo- 
ple and  their  mood  for  the  time  being ;  it  is  only  the  active 
portion  of  the  currency  which  has  the  self-adjusting  power 
that  I  have  spoken  of. 

In  respect  to  the  varying  amounts  of  specie  thus  held  in  re- 


SUBSTITUTES    FOR    MONEY.  313 

serve  by  the  banks,  and  so  not  entering  into  active  circulation, 
Mr.  Tooke  justly  observes,  that  "  transmissions  of  the  precious 
metals  might  and  would  take  place  occasionally  between 
[Great  Britain]  and  other  countries  to  a  considerable  amount, 
(five  or  six  millions  at  least,*)  without  affecting  the  amount  or 
value  of  the  currency  of  the  country  from  which  or  to  which 
the  transmissions  were  made ;  and  without  being  a  cause  or  a 
consequence  of  alteration  in  general  prices."  The  stock  of 
specie  and  bullion  in  the  Bank  of  England,  which,  before  1848, 
used  to  average  only  about  eight  or  nine  millions  sterling,  in 
the  summer  of  1852  rose  to  twenty-two  millions,  or  more  than 
double  the  amount  which  the  law  regards  as  a  safe  basis  for 
its  circulation.  But  the  amount  of  bank-notes  in  active  circu- 
lation was  not  thereby  increased ;  it  was  not  materially  greater 
than  it  had  been  six  years  before.  At  least  twelve  millions  of 
this  large  bank  reserve  might  have  been  sent  to  foreign  coun- 
tries, to  import  com  or  any  other  needed  article,  without  with- 
drawing a  sovereign  from  the  active  currency,  or  affecting  in 
the  slightest  degree  the  prices  of  other  commodities.  In  fact, 
since  1852,  about  six  millions  have  actually  been  withdrawn 
from  the  reserve,  which  now  does  not  exceed  sixteen  millions ; 
and  yet  prices  generally,  far  from  receding,  have  considerably 
advanced. 

Every  export  of  the  precious  metals,  therefore,  is  not  to  be 
regarded  as  a  contraction  of  the  currency  properly  so  called, 
nor  is  every  import  of  them  an  enlargement  of  it.  At  the  pres- 
ent time,  in  consequence  of  the  large  supplies  from  California 
and  Australia,  large  amounts  of  bullion  are  in  transitu,  —  wan- 
dering about,  as  it  were,  from  one  country  to  another,  to  find 
where  they  will  be  of  most  value,  —  before  they  pass  into  ac- 
tive circulation  as  currency.  The  stock  of  bullion  in  the  hands 
of  goldsmiths  and  silversmiths,  ready  for  conversion  into  plate 
or  jewelry,  and,  still  more,  the  stock  of  it  which  already  exists 
in  the  form  of  plate,  the  setting  of  jewels,  lace,  gilding,  &c., 
might  surely  be  exported  in  part,  or  altogether,  without  affect- 
ing the  money  market,  or  lowering  the  prices  of  commodities 
generally.  But  at  least  eight  millions  sterling  out  of  the  specie 
reserve  in  the  Bank  of  England  is  as  dead  for  all  purposes  of 
circulation,  or  for  any  effect  upon  prices,  as  if  it  existed  only  in 
the  form  of  plate ;  for  the  reserve  has  not  fallen  below  eight 
27 


314  THE    DISTRIBUTION    OF    GOLD    AND    SILVER: 

millions  for  the  last  thirteen  years,  and  we  have  only  the  word 
of  the  bank  officers  for  our  assurance  that  this  sum  still  exists 
in  the  vaults,  where  it  has  remained  undisturbed  at  least  since 
1842.  It  is  only  when  the  demand  for  the  precious  metals  to 
be  exported  has  so  far  reduced  the  stock  of  specie  in  the  banks 
as  to  alarm  the  latter  for  their  own  safety,  and  thus  to  cause 
them  to  diminish  then*  discounts  and  their  circulation,  that  the 
self-regulating  power  of  the  active  currency  shows  itself. 

The  power  of  the  currency  thus  to  determine  its  own 
amount,  arises  from  the  reciprocal  action  of  the  quantity  of 
money  in  active  circulation  and  the  prices  of  commodities. 
All  exchange,  as  I  have  said,  is  a  barter  of  merchandise  for 
money;  and  the  quantity  of  money  which  an  article  of  mer- 
chandise will  command  in  the  market  is  termed  its  price.  If 
I  barter  directly  one  article  of  merchandise  for  another,  with- 
out the  intervention  of  money,  the  quantity  of  that  other  arti- 
cle which  I  can  obtain  will  depend  upon  the  whole  quantity 
of  it  in  the  market,  when  compared  with  the  demand  for  it 
Should  there  be  more  of  it  than  there  is  needed  or  asked  for,  I 
can  obtain  a  larger  quantity  of  it  in  barter  for  the  goods  which 
I  have  to  offer;  should  there  be  less  than  is  wanted,  I  can 
obtain  but  little.  Now  money  is  that  which  is  offered  in 
exchange  for  all  commodities ;  and  the  price  of  all  articles 
depends  upon  the  quantity  of  money,  or  active  currency,  which 
exists  in  the  country.  Increase  that  quantity,  and  the  price  of 
all  articles  inevitably  rises ;  diminish  it,  and  the  price  as  cer- 
tainly falls.  The  whole  process  of  exchange  may  be  compared 
to  the  operation  of  weighing  with  a  well-poised  balance,  the 
money  and  the  merchandise  being  placed  on  the  opposite  arms 
of  the  lever ;  increase  the  weight  on  the  money  side,  and  the 
merchandise  is  sure  to  rise.  The  whole  operation  was  exem- 
plified on  the  largest  scale  in  the  sixteenth  century,  after  the 
discovery  of  the  rich  gold  and  silver  mines  on  this  continent. 
The  quantity  of  coined  money  was  increased  by  this  discovery 
fourfold ;  and  the  prices  of  all  articles  rose  all  over  the  world 
to  four  times  their  former  amount.  This  was  called  a  nominal 
rise  of  prices,  and  it  was  nominal ;  for  as  there  was  no  circum- 
stance which  could  affect  the  real  value  of  all  the  articles  of 
merchandise  at  once,  it  was,  in  truth,  not  the  merchandise 
which  rose  in  value,  but  the  money  which  fell.  The  fact,  then, 


SUBSTITUTES    FOR    MONEY.  315 

is  a  proof  of  my  first  position,  that  the  real  value  or  true 
amount  of  all  the  currency  in  the  world  cannot  be  increased  or 
diminished  at  pleasure,  but  regulates  itself;  increase  the  quan- 
tity of  it,  and  its  true  value  falls  in  the  same  proportion. 

We  can  now  easily  see  why  this  fixed  amount  of  currency 
for  the  whole  world  distributes  itself,  by  its  own  laws,  among 
all  nations,  according  to  their  respective  wants.  If  by  any 
means  one  nation  should  obtain  a  larger  portion  of  the  whole 
currency  of  the  world  than  falls  to  it  by  the  regular  course  of 
trade,  all  articles  of  merchandise  belonging  to  that  nation  must 
rise  in  price ;  they  must  be  exchanged  for  a  larger  quantity  of 
money.  Articles  of  foreign  growth  and  manufacture  would 
be  irresistibly  attracted  thither  by  this  alteration  of  values.  A 
single  article  might  possibly  be  excluded  by  prohibitory  legisla- 
tion. But  no  arbitrary  enactments  can  so  clip  the  wings  of 
commerce  as  to  prevent  it  from  seeking  a  market  in  a  country 
where  the  prices  of  all  commodities  have  risen  above  their  aver- 
age value  all  the  world  over.  Foreign  goods  must  necessarily 
be  imported  in  such  a  case,  whether  by  open  trading  or  by 
smuggling;  and  being  imported,  they  must  be  paid  for. 
Money  is  the  only  redundant  article  in  such  a  community,  the 
only  one  which  can  be  offered  in  payment ;  for  all  other  goods 
are,  by  the  hypothesis,  of  a  higher  price  with  them  than  in  any 
other  country,  and  cannot  be  sent  abroad  but  by  a  sacrifice. 
Money,  then,  would  be  exported,  in  spite  of  all  coast  guards, 
and  even  of  the  penalty  of  death ;  and  the  currency  would  thus 
be  reduced  to  its  natural  level. 

The  irresistible  tendency  of  money  to  go  abroad  from  places 
where  it  exists  in  excess,  was  well  illustrated  in  1852,  both  in 
San  Francisco,  California,  and  in  Melbourne,  Australia.  In 
consequence  of  the  immense  influx  of  gold  from  the  "  dig- 
gings" in  the  neighborhood  of  these  places,  the  prices  of  all 
commodities  there  rose  to  an  extent  which  seems  almost  in- 
credible. Flour  was  $  30  a  barrel ;  the  wages  of  ordinary  labor 
were  $  8  a  day ;  $  60  a  ton  was  paid  for  coal.*  Of  course, 

*  Mr.  Howitt  gives  the  following  list  of  prices  of  poultry  and  dairy  produce  in 
Melbourne,  as  late  as  May,  1854,  after  the  excitement  had  somewhat  subsided. 
"  Turkeys,  20s.  to  25s.  each  ;  geese,  20s.  to  30s.  each ;  domestic  ducks,  20s.  a  pair ; 
fowls,  16s.  to  18s.  a  couple  ;  and  eggs,  3s.  to  4s.  a  dozen.  Fresh  butter  is  bringing 
from  4s.  to  5s.  a  pound ;  and  sweet  milk  from  Is.  6d.  to  2s.  a  quart." 


316  THE    DISTRIBUTION    OF    GOLD    AND    SILVER: 

these  prices  caused  a  prodigious  importation  of  foreign  goods. 
"  While  in  1850,  the  year  before  the  gold  discovery,"  says  Mr. 
Howitt,  "  the  imports  of  the  whole  colony  amounted  to  only 
<£  744,925,  for  the  year  ending  April  5, 1854,  the  declared  value 
of  imports  at  the  port  of  Melbourne  alone  had  reached  the 
enormous  sum  of  £  17,675,472."  The  markets  were  quickly 
glutted  by  this  rush  of  goods  from  abroad,  a  reaction  took 
place,  and  prices  fell  almost  as  suddenly  as  they  had  risen. 
Whole  cargoes  were  sold  at  auction,  and  did  not  bring  enough 
to  pay  the  expenses  of  freight  and  insurance.  Meanwhile, 
however,  the  gold  had  been  shipped  off  to  pay  for  the  imported 
commodities  which  had  been  sold  at  extravagant  rates ;  and 
the  further  supplies  obtained  from  the  auriferous  districts 
ceased  to  appear  in  the  market  as  money,  where  they  would 
have  a  disturbing  effect  on  prices,  but  were  reckoned  as  bul- 
lion, or  an  ordinary  commodity  for  export,  and  sent  to  the 
ports  where  it  could  be  sold  on  the  most  favorable  terms. 

Californian  and  Australian  experience  is  rich  in  instruction 
on  some  other  points  in  the  theory  of  money,  which  are  but 
imperfectly  understood  by  most  persons.  Thus,  when  the 
rates  of  interest  are  very  high,  it  is  generally  said  that  there  is 
a  scarcity  of  money ;  and  conversely,  when  these  rates  are  low, 
money  is  thought  to  be  abundant  or  cheap.  But  the  truth  is, 
paradoxical  as  it  may  seem,  that  the  abundance  or  scarcity  of 
money,  or  currency,  has  nothing  to  do  with  the  rates  of  inter- 
est, which  rise  or  fall  in  proportion  only  to  the  quantity  of 
floating  capital  which  happens  to  be  in  the  market  seeking  in- 
vestment; and  what  is  usually  termed  the  "money  market" 
is  more  properly  called  the  loan  market.  So,  at  the  period  just 
referred  to,  both  in  Melbourne  and  San  Francisco,  money  was 
marvellously  plentiful  and  cheap,  as  was  indicated  by  the  ex- 
travagantly high  prices  of  all  commodities.  At  the  same  time, 
the  rates  of  interest  at  those  places  were  exorbitant,  varying 
from  36  to  48  per  cent  a  year ;  these  rates  prevailed  because 
profits  were  very  high,  and  there  was  a  great  deficiency  of  cap- 
ital, notwithstanding  the  extraordinary  abundance  of  money. 

So,  also,  the  severe  reverses  which  attend  a  period  of  wild 
speculation,  terminating  in  a  "  commercial  crisis,"  are  usually 
imputed  to  the  bad  management  of  the  banks,  which  are  said 
to  deluge  the  community  with  their  "  paper  money,"  as  it  is 


SUBSTITUTES    FOR    MONEY.  317 

reproachfully  called,  at  one  moment,  and  at  the  next,  are  com- 
pelled to  withdraw  their  excessive  issues,  and  to  raise  the  value 
of  money  as  suddenly  as  they  had  lowered  it,  greatly  to  the 
detriment  of  the  mercantile  community,  who  suffer  equally  by 
each  extreme.  To  restrict  the  issue  of  bank-notes,  and  to  re- 
cur to  a  "  hard  currency,"  is  the  measure  usually  recommended 
at  such  periods  to  prevent  the  return  of  the  calamity.  But  the 
fact  is,  that  neither  paper  money  nor  coined  money  has  any- 
thing to  do  with  these  injurious  alternations,  which  usually 
proceed  from  the  opening  of  a  new  source  of  business,  sup- 
posed to  be  attended  with  immense  profits,  the  rush  of  capital- 
ists into  this  new  employment,  the  extravagant  rates  of  interest 
which  they  are  tempted  to  pay  from  their  anticipation  of  ex- 
travagant profits,  and  the  inevitable  recoil  or  disappointment 
of  their  hopes,  either  from  the  new  business  being  overdone,  or 
from  the  detected  fallacy  of  the  original  representations  con- 
cerning it.  No  commercial  crisis  was  ever  more  severe  than 
that  which  occurred  in  California  in  1853  -  4,  and  in  Australia 
in  1854  -  5 ;  and  these  surely  were  not  attributable  to  any  im- 
proper action  of  the  banks,  for  there  were  then  no  banks  of 
issue  in  those  countries,  and  the  "  hard  currency "  which  had 
always  existed  there  did  not  avert  the  storm.  Not  the  abun- 
dance of  money,  but  the  excessive  profits  which  resulted  from 
the  anomalous  state  of  trade  there,  first  created  the  fever  of 
speculation  which  was  the  original  source  of  the  evil ;  and  the 
scarcity  of  money  was  so  far  from  being  the  cause,  or  the  char- 
acteristic feature,  of  the  recoil,  that  hard  money  continued  to 
be  throughout  the  crisis,  what  it  had  been  in  the  preliminary 
period,  the  staple  article  of  export  to  other  lands. 

But  this  is  a  digression,  and  I  return  to  the  subject  of  the 
equalization  of  the  currency.  We  have  seen  what  will  be  the 
turn  of  trade  when  money  is  redundant.  In  the  other  case,  if 
the  currency  of  any  nation  should  fall  below  the  average  pro- 
portion to  its  wants,  the  prices  of  all  merchandise  would  fall, 
they  being  exchanged  against  a  smaller  amount  of  money. 
There  would  be  a  tendency,  then,  to  export  all  commodities, 
since  a  profit  could  be  made  by  the  sale  of  them  in  foreign 
countries  rather  than  at  home.  And  in  payment  for  the  com- 
modities thus  sent  abroad,  money  must  be  returned  till  the 
equilibrium  of  the  currency  is  restored.  Thus  the  equal  dis- 
27* 


318  THE    DISTRIBUTION    OF    GOLD   AND    SILVER: 

tribution  of  specie  among  all  countries,  in  proportion  to  the 
wants  of  each,  takes  place  through  the  inevitable  tendencies  of 
trade,  all  goods  invariably  seeking  a  market  where  they  can  be 
sold  to  the  best  advantage.  The  equalization  of  money  is  but 
another  name  for  the  equalization  of  prices.  The  general  prin- 
ciple has  been  clearly  stated  by  Mr.  Ricardo,  who  has  shown 
"  that  redundancy  and  deficiency  of  currency  are  only  relative 
terms  ;  and  that,  so  long  as  the  currency  of  a  particular  country 
consists  exclusively  of  gold  and  silver  coins,  or  of  a  paper  im- 
mediately convertible  into  such  coins,  its  value  can  neither  rise 
above  nor  fall  below  the  value  of  the  currencies  of  other  coun- 
tries by  a  greater  sum  than  will  suffice  to  defray  the  expense 
of  importing  foreign  coin  or  bullion,  if  the  currency  be  defi- 
cient ;  or  of  exporting  a  portion  of  the  existing  supply,  if  it  be 
redundant." 

Regarding  this  principle  as  established,  that  the  currency  is 
of  a  fixed  amount  or  value,  I  come  now  to  consider  the  vari- 
ous practices  and  expedients  by  which  the  necessity  of  filling 
up  the  whole  of  this  currency  with  so  costly  a  material  as  gold 
and  silver  coin  is  obviated.  Some  of  these  may  properly  be 
viewed,  not  as  substitutes  for  the  precious  metals,  but  as  prac- 
tices which  have  grown  up  in  commercial  countries,  whereby 
commercial  transactions  are  really  completed  without  the  inter- 
vention of  any  money.  Such  are  what  are  termed  accounts 
current,  opened  between  merchants  who  have  frequent  dealings 
with  each  other.  If,  for  instance,  A  has  occasion,  in  the  course 
of  a  year,  to  make  a  hundred  different  purchases  of  B,  and  B 
to  buy  as  frequently  and  about  as  largely  from  A,  were  each 
transaction  to  be  completed  and  settled  by  itself  at  the  time, 
two  hundred  transfers  of  different  sums  of  money  from  one  to 
the  other  must  be  made  in  a  twelvemonth.  But  if  each  party 
chose  to  allow  the  other  credit  till  a  fixed  time  for  settlement, 
then  the  whole  amount  of  purchases  on  one  side  might  be  de- 
ducted from  the  whole  amount  on  the  other,  and  only  the  bal- 
ance be  paid  in  money.  If  nine  tenths  of  an  account  are  thus 
settled  by  offsets,  and  only  one  tenth  by  cash,  it  is  evident  that 
nine  tenths  of  the  trade  has  been  a  direct  barter  of  one  kind 
of  merchandise  for  another,  just  as  if  money,  or  a  universal 
medium  of  exchange,  had  never  been  invented.  It  is  by  prac- 
tices analogous  to  this,  rather  than  by  increased  rapidity  of  cir- 


SUBSTITUTES    FOR   MONEY.  319 

culation,  as  I  believe,  that  a  nation's  want  of  currency  does 
not  increase  in  as  rapid  a  ratio  as  its  population  and  its  opu- 
lence. Even  when  the  sales  are  all  made  by  one  of  the  parties, 
a  person  who  has  credit  with  him  may  adjust  by  a  single  pay- 
ment in  cash  several  hundred  different  purchases  made  at  vari- 
ous times  since  the  former  settlement.  It  is  important  to 
remember  such  familiar  facts  as  these,  when  an  attempt  is 
made  to  attribute  all  the  evil  of  over-trading  to  an  undue  ex- 
pansion of  paper  currency,  and  a  scarcity  of  specie.  We  see 
that  over-trading  may  take  place  to  any  extent,  without  the 
intervention  of  any  currency  whatever,  whether  paper  or  me- 
tallic. 

Another  mode  of  avoiding  the  frequent  transfer  of  specie  is 
the  transfer  or  sale  of  debts.  If  a  merchant  has  a  sum  of 
money  due  to  him  by  one  person,  A,  while  he  owes  an  equiv- 
alent sum  to  another,  B,  he  can  cancel  both  obligations  at 
once,  without  having  the  money  pass  through  his  own  hands 
at  all,  by  simply  giving  B  an  order  upon  A  for  the  amount 
required.  Here,  one  operation  —  one  transfer  of  currency  — 
evidently  takes  the  place  of  two ;  instead  of  A  paying  the 
given  sum  to  the  merchant,  and  the  merchant  immediately 
paying  it  over  to  B,  A  pays  it  directly  to  B,  and  the  account 
is  squared  all  round.  If  the  merchant  does  business  in  New 
York,  while  A  and  B  are  both  resident  in  London,  such  an 
order  is  called  a  bill  of  exchange,  and  the  saving  of  trouble  and 
expense  that  is  effected  by  it  is  very  obvious ;  without  such  an 
order,  A  must  pay  his  debt  by  shipping  the  required  amount 
of  specie  from  London  to  New  York ;  and  then  the  merchant, 
in  order  to  pay  his  debt  to  B,  must  immediately  ship  the  spe- 
cie back  again  to  London.  There  would  then  be  a  loss  of 
time  enough  for  making  two  voyages  across  the  ocean,  a  loss 
of  interest  on  the  money  during  this  time,  and  the  cost  of 
freight  and  insurance  on  the  amount  during  two  voyages.  All 
this  expense  and  inconvenience  are  saved  by  the  simple  expe- 
dient of  a  bill  of  exchange,  or  an  order  for  the  transfer  of  a 
debt. 

It  may  happen  that  the  merchant,  though  he  has  a  debt  due 
to  him  in  London,  does  not  himself  owe  any  money  in  that 
city ;  still,  he  will  not  be  obliged  to  have  the  specie  sent  to  him 
by  sea,  if  he  can  find  another  merchant  in  New  York  who 


320  THE    DISTRIBUTION    OF    GOLD    AND    SILVER: 

does  owe  a  debt  in  London  to  precisely  the  same  amount. 
The  first  merchant,  C,  will  then  sell  his  debt  to  the  second 
merchant,  D,  or  in  other  words,  sell  him  a  bill  of  exchange, 
which,  when  paid  in  London  by  A  to  B,  at  once  cancels  A's 
debt  to  C,  and  D's  debt  to  B.  Two  payments  of  money,  the 
one  from  A  to  B,  who  are  both  in  London,  and  the  other  from 
D  to  C,  who  are  both  in  New  York,  evidently  cancel  four  obli- 
gations, two  of  which,  one  from  A  to  C,  and  another  from  D 
to  B,  are  eliminated,  or  set  off  against  each  other,  their  direct 
adjustment  being  inconvenient,  because  the  respective  parties 
to  them  reside  in  different  cities. 

We  can  now  understand  what  is  meant  by  the  course  and 
par  of  exchange.  All  the  merchants  in  New  York  who  have 
debts  due  to  them  in  London,  draw  bills  of  exchange  for  the 
amount  of  these  debts,  and  go  into  market  to  sell  these  bills  to 
other  New  York  merchants  who  have  debts  to  pay  in  London. 
If  the  former  set  have  a  larger  amount  to  sell  than  the  latter 
have  occasion  to  buy,  —  or,  in  other  words,  if  a  greater  amount 
of  debt  is  due  from  London  to  New  York,  than  from  New 
York  to  London,  —  the  competition  of  the  selling  merchants 
with  each  other  will  lower  the  price  of  these  bills  a  little,  or 
subject  them  to  a  small  discount.  A  bill  of  exchange  for  one 
hundred  dollars  may  not  bring  in  the  market  more  than  98| 
dollars ;  the  exchange  is  then  said  to  be  \\  per  cent  against 
London,  or  \\  per  cent  below  par.  It  cannot  fall  much  lower 
than  this,  for  the  merchant,  rather  than  take  98  dollars  for  his 
bill,  will  cause  the  100  dollars  to  be  sent  over  to  him  by  his 
London  debtor  in  specie ;  the  freight,  insurance,  and  other 
charges,  cannot  amount  to  more  than  two  dollars.  Whenever, 
then,  the  exchange  falls  about  \\  per  cent  below  par,  we  may 
expect  that  shipments  of  specie  from  England  to  America  will 
begin.  On  the  other  hand,  if  a  greater  amount  of  debt  is  due 
from  New  York  to  London  than  from  London  to  New  York, 
then  there  will  be  more  buyers  than  sellers  of  such  bills  in  New 
York  market ;  and  the  competition  of  these  buyers  with  each 
other  may  cause  a  bill  for  $  100  to  sell  for  $  101.50.  The  dif- 
ference cannot  be  much  greater  than  this,  or  it  would  cause 
specie  to  be  shipped  from  America  to  England.  The  exchange 
is  then  said  to  be  against  New  York,  or  1|  per  cent  above  par. 
In  order  to  simplify  this  explanation,  I  have  supposed  the 


SUBSTITUTES    FOR    MONEY.  321 

metallic  currency  of  the  two  countries  to  consist  of  the  same 
denomination  of  coin,  —  namely,  of  dollars.  But  this  is  not 
the  case ;  the  New  York  merchant  who  has  a  debt  due  to  him 
in  London,  draws  a  bill  of  exchange,  not  for  so  many  dollars, 
but  for  so  many  pounds  sterling,  or  sovereigns.  Now  the 
American  dollar,  or  the  tenth  part  of  an  eagle,  contains,  as  we 
have  seen,  23.2  grains  of  pure  gold,  and  the  English  sovereign 
has  113  grains  and  a  small  fraction.  These  two  numbers  are 
to  each,  very  nearly,  as  1  to  4.87.  The  exchange,  then,  is 
really  at  par  when  a  bill  on  London  for  100  pounds  sterling 
sells  in  New  York  for  487  dollars.  This,  I  say,  is  the  real  par ; 
the  nominal  par,  established  in  1789,  and  ever  since  retained  in 
exchange  operations,  made  the  dollar  equal  to  45.  6d.  sterling, 
and  the  pound  sterling,  therefore,  worth  only  $  4.44.  The  pres- 
ent value  of  the  pound  sterling,  $  4.87,  is  about  9^  per  cent 
more  than  this ;  and  therefore  the  exchange  is  really  at  par, 
when,  according  to  the  prices  current,  it  is  9|  per  cent  above 
par.  The  expense  of  shipping  specie  either  way  being  about 
1|  per  cent,  when  the  exchange  nominally  rises  to  about  11  per 
cent,  specie  will  be  shipped  from  New  York  to  London  ;  when 
it  nominally  falls  below  8  per  cent,  specie  will  be  shipped  from 
London  to  New  York.  As  the  quoted  price  of  exchange  at 
New  York  is  for  bills  on  London  at  sixty  days'  sight,  allow- 
ance must  be  made  for  interest  for  this  time. 

It  is  easy  to  see  that  the  par  of  the  currency  of  any  two 
countries  means,  among  merchants,  the  equivalence  of  a  cer- 
tain amount  of  the  currency  of  the  one  in  the  currency  of  the 
other,  supposing  the  currencies  of  both  to  be  of  the  precise 
weight  and  purity  fixed  by  their  respective  mints.  Thus,  ac- 
cording to  the  mint  regulations  of  Great  Britain  and  France, 
the  same  quantity  of  pure  gold  which  in  London  is  coined  into 
one  pound  sterling,  in  Paris  is  coined  into  25  francs  and  20 
centimes ;  and  accordingly,  this  is  said  to  be  the  par  between 
the  two  countries.  The  exchange  between  the  two  countries 
is  said  to  be  at  par  when  bills  are  negotiated  on  this  footing ; 
that  is,  when  a  bill  for  £  100  drawn  on  London  is  worth  2,520 
francs  in  Paris,  and  conversely.  As  we  have  already  seen  that 
$  4.87  in  New  York  equals  one  pound  sterling  in  London,  it 
follows  that  $  4.87  also  equals  25  francs  20  centimes  in  Paris  ; 
or,  what  is  the  same  thing,  one  American  dollar  is  worth  5 


322  THE    DISTRIBUTION    OF    GOLD    AND    SILVER  : 

francs  17  centimes  and  a  small  fraction,  which  is  the  par  of 
exchange  between  France  and  the  United  States. 

From  the  explanation  now  given,  it  appears  very  clearly  that 
bills  of  exchange  represent  the  items  in  the  account  current  be- 
tween England  and  America ;  and  the  specie  shipped  either 
way  is  the  cash  balance  that  is  struck  on  the  adjustment  of  the 
>  account.  Bills  of  exchange  are  not  drawn  against  air ;  they 
represent  real  transactions.  The  New  York  merchant  cannot 
draw  bills  on  London  unless  he  has  debts  due  to  him  there, 
which  debts  have  been  contracted  for  cotton,  flour,  tobacco, 
and  other  American  products,  which  he  had  sent  thither  to  be 
sold.  On  the  other  hand,  a  New  York  merchant  cannot  have 
debts  to  pay  in  London,  except  in  return  for  manufactured 
goods,  whether  of  cotton,  silk,  woollen,  or  iron,  which  he  has 
received  from  England,  and  consumed  or  sold  in  America. 
And  in  the  long  run,  it  is  evident  that  our  exported  goods 
must  exactly  pay  for  our  imported  goods,  or  the  two  sides  of 
the  account  must  balance  each  other.  If  they  did  not  balance, 
if  our  exports  were  not  equivalent  in  value  to  our  imports,  the 
deficiency  would  have  to  be  made  up  by  sending  specie 
abroad;  and  a  continued  drain  of  specie,  according  to  what 
has  already  been  demonstrated,  would  raise  the  value  of  the 
money  left  behind,  and,  in  consequence  of  raising  the  value  of 
money,  would  lower  the  prices  of  goods  in  America ;  and  the 
influx  of  specie  into  England  would  lower  the  value  of  money 
there,  and  raise  the  prices  of  goods.  Erelong,  then,  the  tide 
would  turn ;  more  goods  would  be  sent  from  America,  where 
they  are  lower  in  price,  to  England,  where  they  are  higher  in 
price ;  and  in  payment  for  these  goods,  the  current  of  specie 
would  set  in  the  opposite  direction,  till  the  value  of  money  in 
the  two  countries  was  equalized  again.* 

*  There  is  a  curious  feature  in  the  management  of  the  trade  between  England  and 
the  United  States,  which  is  in  marked  contrast  with  the  course  of  mercantile  trans- 
actions between  England  and  all  other  commercial  nations.  For  some  inexplicable 
reason,  the  bills  of  exchange  are  all  drawn  one  way.  In  Boston  and  New  York, 
bills  can  always  be  purchased  on  London  or  Liverpool ;  but  neither  London  nor 
Liverpool  is  supplied  with  any  bills  on  Boston  or  New  York.  When  cotton  or  flour 
is  purchased  in  America  for  the  English  market,  the  seller  draws  bills  of  exchange 
on  the  consignee  of  the  goods  for  the  proceeds  of  the  sale,  and  disposes  of  these  bills 
in  the  New  York  market.  But  when  manufactured  goods  are  bought  in  Great  Brit- 
ain for  the  American  market,  the  seller,  instead  of  drawing  directly  on  the  New 


SUBSTITUTES    FOR    MONEY.  323 

The  exports  of  any  country  must  exactly  balance  its  im- 
ports, for  the  same  reason  that,  when  two  individual  produ- 
cers of  different  articles  trade  exclusively  with  each  other,  they 
must  really  barter  merchandise  for  merchandise,  exchanging 
equivalent  values  of  different  kinds ;  money  serving  no  pur- 
pose between  them  but  that  of  facilitating  the  exchanges  of 
goods ;  —  and  this  is,  in  fact,  the  only  office  that  money,  as 
such,  ever  performs.  It  is  oil  that  diminishes  the  friction  of 
exchanges.  If,  for  instance,  a  hatter  trades  exclusively  with  a 
shoemaker,  the  former  can  buy  no  more  shoes  than  he  can  sell 
hats  with  which  to  pay  for  them.  He  may,  indeed,  run  in 
debt  for  a  large  stock  of  shoes  at  once ;  but  that  debt  he  will 
be  obliged  ultimately  to  pay  by  restricting  his  purchases  of 
shoes,  and  enlarging  his  sales  of  hats.  So,  this  country,  trad- 
ing with  all  the  rest  of  the  world,  can  buy  no  more  foreign 
products  than  it  has  domestic  products  with  which  to  pay  for 
them.  Money  and  bills  of  exchange  cannot  help  us  to  pay  our 
debts  ;  they  only  facilitate  and  represent  the  operations  out  of 
which  those  debts  have  grown.  Thus,  in  the  fatal  year  1836, 
the  imports  into  the  United  States  were  about  190  millions  of 
dollars,  and  the  exports  were  less  than  129  millions,  —  appar- 
ently a  balance  of  61  millions  against  us ;  a  sum  much  too 
large  to  be  accounted  for  by  the  ordinary  profits  of  trade  and 
charges  of  transportation.  We  ran  deeply  in  debt  that  year, 
and  had  to  suffer  for  it  afterwards.  In  1838,  the  balance  was 
5  millions,  and  in  1839,  it  was  41  millions,  the  other  way. 
The  sum  of  these  two,  or  46  millions,  probably  paid  off,  or 


York  merchant  to  whom  the  goods  are  consigned,  draws  on  a  banker  in  London, 
and  the  bills  so  drawn  are  accepted  by  the  banker  on  commission  for  the  American 
purchaser,  who  undertakes  to  make  provision  for  them  before  they  become  due  by 
making  remittances  of  English  bills  which  he  purchases  in  New  York.  Of  course, 
the  London  banker,  by  accepting  the  bills  before  remittances  are  made  to  meet  them, 
becomes  responsible  for  their  payment,  and  charges  an  extra  commission  for  assum- 
ing this  responsibility. 

In  reference  to  this  anomalous  course  of  business,  Mr.  W.  J.  Lawson,  the  author 
of  a  "  History  of  Banking,"  remarks  :  "  To  place  the  trade  of  America  on  the  same 
footing  as  that  of  all  other  commercial  nations  has  long  been  a  desideratum.  Nu- 
merous appeals,  in  the  shape  of  pamphlets  and  other  publications,  recommending 
the  adoption  of  a  course  of  exchange  between  the  two  countries,  have  brought  con- 
viction to  the  mind  of  almost  every  mercantile  man ;  yet.  strange  to  say,  no  step  has 
yet  been  taken  to  effect  the  object;  it  is  an  evil  which  must  ultimately  work  its  own 


324  THE    DISTRIBUTION    OF    GOLD    AND    SILVER: 

nearly  paid  off,  the  balance  contracted  the  other  way,  in  1836, 
of  61  millions.  For  it  is  important  to  state,  that,  although  we 
must  really  pay  for  our  imports  with  our  exports,  the  former 
must  always  exceed  the  latter  in  nominal  amount,  if  we  take 
the  home  valuation  of  both.  This  may  easily  be  perceived  by 
attending  to  a  single  voyage  of  one  ship.  Suppose  a  mer- 
chant sends  a  cargo  of  oil  to  Russia,  and  brings  back  a  ship- 
load of  duck,  iron,  hemp,  and  other  Russian  products.  If  his 
venture  be  a  successful  one,  it  is  evident  that  the  aggregate 
value  of  the  return  cargo  must  so  far  exceed  that  of  the  out- 
ward cargo  as  to  pay  the  charges  of  transportation  both  ways, 
and  afford  a  reasonable  profit  on  both  parts  of  the  transaction. 
Estimate  the  values  in  the  Russian  port,  and  it  will  appear 
that  our  general  proposition  holds  true ;  the  oil  exactly  paid 
for  the  duck,  iron,  and  hemp,  —  the  exports  just  balanced  the 
import.  Estimated  in  the  American  port,  the  duck,  iron,  and 
hemp  exceed  in  value  the  oil  enough  to  pay  the  charges  of  the 
voyage  and  leave  a  profit. 

I  borrow  another  striking  illustration  of  this  law  from  a 
speech  by  the  great  Senator  of  Massachusetts.  Many  "  years 
ago,"  says  Mr.  Webster,  "in  better  times  than  the  present, 
a  ship  left  one  of  the  towns  of  New  England  with  seventy 
thousand  specie  dollars.  She  proceeded  to  Mocha  on  the 
Red  Sea,  and  there  laid  out  these  dollars  in  coffee,  spices, 
drugs,  &c.  With  this  new  cargo,  she  proceeded  to  Europe ; 
two  thirds  of  it  were  sold  in  Holland  for  one  hundred  and  thirty 
thousand  dollars,  which  the  ship  brought  back,  and  placed  in 
the  same  bank  from  the  vaults  of  which  she  had  taken  her 
original  outfit.  The  other  third  was  sent  to  the  ports  of  the 
Mediterranean,  and  produced  a  return  of  twenty-five  thousand 
dollars  in  specie,  and  fifteen  thousand  dollars  in  Italian  mer- 
chandise. These  sums  together  make  one  hundred  and  sev- 
enty thousand  dollars  imported,  which  was  a  hundred  thou- 
sand dollars  more  than  was  exported";  and  yet,  in  each 
foreign  port  which  the  ship  visited,  equal  values  were  ex- 
changed. In  those  ports,  the  imports  exactly  balanced  the 
exports ;  but  in  the  New  England  harbor,  the  imports  ex- 
ceeded the  exports  by  this  large  sum,  which,  minus  the  charges 
of  transportation,  was  all  profit. 

This  illustration  brings  us  to  an  important  qualification  of 


SUBSTITUTES    FOR   MONEY.  325 

the  principle  as  first  stated,  and  to  an  explanation  of  another 
purpose,  or  office,  of  bills  of  exchange.  To  simplify  the  mat- 
ter, I  supposed  at  first  that  the  United  States  traded  with  Eng- 
land alone,  that  bills  of  exchange  facilitated  our  transactions 
with  her;  and  we  were  thus  led  to  the  general  proposition, 
that  foreign  trade  is  really  a  barter  of  merchandise  for  mer- 
chandise, equal  values  being  exchanged,  and  money  playing 
only  a  very  subordinate  part  in  the  affair.  But  foreign  trade  is 
only  a  long  and  heavy  account  current  of  one  nation  with  all 
the  rest  of  the  world,  charges  on  one  side  being  set  off  by 
charges  on  the  other,  and  the  account  being  finally  adjusted 
by  the  transfer  of  a  comparatively  trifling  sum  in  cash  to  rep- 
resent the  balance.  Our  trade  is  not  confined  to  England ;  it 
extends  to  every  nation  of  the  earth,  and  to  every  isle  of  the 
sea.  The  account  is  not  balanced  with  each  nation  sepa- 
rately ;  far  from  it.  In  the  case  of  China,  our  purchases  very 
much  exceed  our  sales ;  in  the  case  of  the  British  kingdom, 
our  sales  very  much  exceed  our  purchases.  We  set  off  one 
case  against  the  other ;  we  pay  our  debt  to  China  by  transfer- 
ring to  her  a  portion  of  the  debt  owed  to  us  by  Great  Britain, 
—  bills  of  exchange  enabling  us  to  transfer  debts  not  only  from 
one  individual  to  another,  but  from  one  country  to  another. 
We  annually  buy  tea  and  other  Chinese  products  to  the 
amount  of  10|  millions ;  we  export  directly  to  China  less  than 
four  millions.  The  balance,  which  is  evidently  too  great  to  be 
accounted  for  solely  by  charges  of  transportation  and  profits  of 
trade,  we  pay  by  sending  to  China  bills  of  exchange  on  Lon- 
don. On  the  other  hand,  our  annual  exports  to  the  British 
West  Indies  are  from  four  to  five  millions,  while  our  imports 
from  these  islands  seldom  exceed  one  million.  We  may  re- 
ceive pay  for  the  balance  by  bills  of  exchange  on  London ; 
that  is,  the  West  India  planters  pay  us  for  the  articles  of  pro- 
vision that  we  send  to  them,  by  transferring  to  us  a  part  of  the 
debt  due  to  them  for  the  sugar,  molasses,  spirits,  &c.,  which 
they  have  sent  to  England.  These  very  bills  of  exchange,  em- 
anating from  the  British  West  Indies,  we  might  use  in  paying 
our  debt  to  China  for  tea.  One  article  of  merchandise  is  really 
paid  for  with  another,  though  the  one  is  obtained  from  Can- 
ton, and  the  other  is  sent  to  Jamaica.  Very  little  money  is 
used  in  the  whole  circle  of  transactions ;  a  single  shipment  of 
28 


326  THE    DISTRIBUTION    OF    GOLD    AND    SILVER: 

half  a  million  of  dollars  may  suffice  to  balance  an  immensely 
long  account,  opened  with  England,  the  continent  of  Europe, 
China,  and  both  Indies,  amounting  in  the  aggregate  to  sixty 
or  seventy  millions. 

If  we  examine  the  facts  as  they  are  given  in  the  official  re- 
turns, we  find  that  they  agree  with  the  theory.  The  reports, 
for  instance,  for  the  year  ending  June  30,  1844,  show  that  the 
imports  entered  for  consumption,  exclusive  of  specie,  amounted 
to  more  than  96  millions  of  dollars,  while  the  coin  and  bullion 
we  sent  abroad  that  year  was  but  $  5,454,214.  Our  total  ex- 
ports of  domestic  produce  for  that  year  exceeded  99  millions, 
while  the  specie  we  received  from  abroad  was  but  $  5,830,429. 
The  actual  cash  balance  that  year,  of  course,  was  the  differ- 
ence of  these  two  sums  of  specie ;  that  is,  only  $  376,215. 
And  this  was  the  balance  of  an  account  current  of  the  United 
States  with  all  the  world,  which  had  96  millions  on  one  side, 
and  99  millions  on  the  other.  Again,  if  we  take  the  year 
1846,  we  find  the  imports  amounting  to  over  110  millions, 
while  the  specie  sent  abroad  was  less  than  4  millions ;  the  ex- 
ports were  nearly  102  millions,  and  the  specie  received  was  a 
little  more  than  3|  millions.  In  other  words,  a  remittance  of 
$  127,536  in  cash  would  have  settled  an  account  in  which  102 
millions  were  sold,  and  110  millions  purchased. 

If  we  examine  the  returns  for  a  series  of  consecutive  years, 
and  anywhere  find  an  apparent  departure  from  this  rule,  either 
by  an  excessive  importation  or  excessive  exportation  of  specie, 
we  also  perceive  a  corresponding  excess  of  exports  or  imports, 
proceeding  from  some  peculiar  causes  affecting  the  course  of 
trade  for  that  year ;  and  we  find,  moreover,  a  recoil  the  follow- 
ing year,  produced  by  that  self-regulating  power  of  the  curren- 
cy which  has  been  explained.  Take,  for  instance,  the  follow- 
ing table,  which  I  have  compiled  from  the  Secretary  of  the 
Treasury's  Report  for  1854. 

Tearendimt  Imports  entered  Coin  and  bullion  Domestic  produce  Coin  and  bullion 

for  consumption.  exported.  exported.  imported. 

June  30,  1844  $96,390,548  $5,454,214  $99,531,774  $5,830,429 

1845  105,599,541  8,606,495  98,455,330  4,070,242 

1846  110,048,859  3,905,268  101,718,042  3,777,732 

1847  116,257,595  1,907,024  150,574,844  24,129,289 

1848  140,651,902  15,841,616  130,203,709  6,360,224 

1849  132,565,168  5,404,648  131,710,081  6,651,240 

Here  we  find,  for  1847,  a  great  excess  of  specie  imported, 


SUBSTITUTES    FOR    MONEY.  327 

amounting  to  24  millions,  the  average  for  the  other  years  being 
only  5  millions.  The  reason  for  this  excess  appears  in  the 
amount  of  domestic  produce  exported  that  year,  which  was 
150  millions,  or  at  least  35  millions  more  than  could  have  been 
anticipated  from  the  natural  rate  of  increase  of  our  exports. 
This  sudden  enlargement  of  the  exports  was  caused  by  the 
great  amount  of  bread-stuffs,  (68  millions,  or  more  than  double 
the  average  quantity,)  shipped  from  our  ports  that  year,  to 
make  up  for  the  famine  in  Ireland  and  the  dearth  throughout 
Western  Europe.  This  large  amount  of  coin  and  bullion  re- 
ceived made  our  currency  redundant,  and  we  perceive  that  an 
effort  was  made  the  next  year  to  get  rid  of  the  superfluous 
money.  But  no  action  of  the  government,  no  combination  of 
individuals,  was  requisite  for  this  purpose ;  the  matter  regu- 
lated itself.  England  had  sent  away  a  considerable  portion  of 
her  currency,  and  therefore  the  prices  of  her  commodities  fell ; 
the  United  States  had  received  what  England  had  lost,  and 
therefore  prices  in  America  rose.  Thus  it  became  profitable 
to  purchase  goods  in  England  and  sell  them  in  the  United 
States ;  and  thus  our  imports  in  1848  suddenly  rose  to  140 
millions  (an  excess  of  16  millions  over  the  average  of  1847 
and  1849)  ;  and,  to  pay  for  these  goods,  we  exported  nearly  16 
millions  of  coin  and  bulk' on,  which  restored  the  balance  of  the 
currency.  A  severe  commercial  crisis  in  England  was  the  con- 
sequence of  this  drain  of  specie,  in  1847,  caused  by  the  neces- 
sity of  buying  food,  though  the  effect  was  probably  somewhat 
aggravated  by  excessive  investment  in  railways.  But  the  mis- 
management of  the  banks,  or  an  excessive  circulation  of  bank- 
notes, was  certainly  not  the  cause  of  the  evil,  the  act  of  Parlia- 
ment passed  three  years  before  being  an  insuperable  obstacle 
to  any  extension  of  the  paper  currency.  On  the  contrary,  Mr. 
Tooke  rightly  argues,  that  a  moderate  increase  of  the  amount 
of  bank-notes  in  circulation  might  have  obviated  the  calamity 
in  part,  or  altogether,  by  filling  up  the  vacuum  in  the  currency 
created  by  the  exportation  of  specie. 

When,  in  the  course  of  international  trade,  one  country  be- 
comes indebted  to  another,  the  question  whether  the  deficiency 
shall  be  made  up  by  remittances  of  money  or  of  goods,  is  one 
that  determines  itself,  on  the  same  principles  which  usually 
cause  one  commodity  to  be  preferred  to  another  as  an  article 


328  THE    DISTRIBUTION    OF    GOLD    AND    SILVER: 

of  export.  The  merchant  will  send  the  one  which  he  thinks 
is  less  valuable  at  home,  and  more  valuable  abroad,  than  any 
other  commodity.  If  coin  and  bullion  answer  this  condition, 
—  that  is,  if  other  commodities  are  dearer  at  home  than 
abroad,  —  then  coin  and  bullion  will  be  sent.  But,  as  Mr. 
McCulloch  remarks,  "though  the  premium  on  foreign  bills 
should  increase,  so  as  to  equal  the  cost  of  exporting  the  pre- 
cious metals,  (for  it  cannot  exceed  this  sum,)  it  does  not  by 
any  means  follow  that  they  would  therefore  be  exported.  That 
depends  entirely  on  the  fact,  whether  bullion  be,  at  the  time, 
the  cheapest  exportable  commodity ;  or,  in  other  words,  wheth- 
er a  remittance  of  bullion  be  the  most  advantageous  way  in 
which  a  debt  may  be  discharged.  If  a  London  merchant  owe 
£  100  in  Paris,  he  sets  about  finding  out  the  cheapest  method 
of  paying  it.  On  the  supposition  that  the  real  exchange  is 
two  per  cent  below  par,  and  that  the  expense  of  remitting  bul- 
lion, including  the  profit  of  the  bullion  merchant,  is  also  two 
per  cent,  it  will  be  indifferent  to  him  whether  he  pay  £  2  of 
premium  for  a  bill  of  £  100  payable  in  Paris,  or  incur  an  ex- 
pense of  £  2  by  remitting  £  100  worth  of  bullion  directly  to 
that  city.  If  the  prices  of  cloth  in  Paris  and  London  be  such, 
that  it  would  require  £  103  to  purchase  and  send  as  much  cloth 
to  Paris  as  would  sell  for  £  100,  he  would  undoubtedly  prefer 
buying  a  bill  or  exporting  bullion.  But  if,  by  incurring  an  ex- 
pense of  £  101,  the  debtor  be  able  to  send  as  much  hardware 
to  Paris  as  would  sell  for  £  100,  he  would  as  certainly  prefer 
paying  his  debt  by  an  exportation  of  hardware.  By  doing  so, 
he  saves  one  per  cent  more  than  if  he  bought  a  foreign  bill  or 
remitted  bullion,  and  two  per  cent  more  than  if  he  exported 
cloth.  It  follows,  then,  that  the  balance  of  payments  might 
be  a  hundred  millions  against  a  country,  without  depriving  it 
of  a  single  ounce  of  bullion.  No  merchant  would  remit  £  100 
worth  of  gold  or  silver  from  England  to  discharge  a  debt  in 
Paris,  if  he  could  invest  £  98,  £  99,  or  any  smaller  sum,  in 
any  other  species  of  merchandise  which,  exclusive  of  expenses, 
would  sell  in  France  for  £  100.  Those  who  deal  in  the  pre- 
cious metals  are,  we  may  depend  upon  it,  as  much  under  the 
influence  of  self-interest,  as  those  who  deal  in  coffee  or  indigo. 
But  who  would  attempt  to  discharge  a  foreign  debt  by  export- 
ing coffee  which  cost  £  100,  if  he  could  effect  the  same  object 


SUBSTITUTES    FOR    MONEY.  329 

by  sending  abroad  indigo  which  cost  only  X  97  ?  No  person 
in  his  senses  would  export  a  hat  to  be  sold  for  205.,  provided 
he  could  sell  it  at  home  for  a  guinea ;  nor  would  any  person 
export  an  ounce  of  bullion,  if  its  value  were  not  less  in  the  ex- 
porting than  in  the  importing  country,  or  if  there  were  any 
other  commodity  whatever  that  might  be  exported  with  greater 
advantage." 

Bills  of  exchange,  or  the  transfer  of  debts,  may  take  the  place 
of  money  to  an  almost  incalculable  extent  The  instances  thus 
far  adduced  relate  only  to  foreign  bills  of  exchange,  or  the  ad- 
justment of  our  trade  with  other  countries.  But  domestic  bills 
of  exchange  are  also  drawn  to  vast  amounts,  to  represent  and 
balance  the  items  in  our  account  current  with  the  other  States 
and  cities  of  this  Union ;  they  are  not,  indeed,  always  called 
by  this  name ;  they  generally  appear  under  the  form  and  ap- 
pellation of  drafts  and  checks.  But  they  all  amount  to  the 
same  thing ;  they  are  really  bills  of  exchange,  because  they  are 
written  orders  for  the  transfer  or  sale  of  debts.  They  are  dis- 
tinguished from  paper  currency,  properly  so  called,  or  bank- 
bills,  by  this  single  circumstance,  —  that  a  proper  bill  of  ex- 
change, draft,  or  check  must  usually  be  indorsed  by  each  party 
through  whose  hands  it  passes,  and  every  person  who  indorses 
it  incurs  a  modified  responsibility  for  its  payment ;  while  bank- 
bills,  as  we  all  know,  pass  from  hand  to  hand  without  any 
indorsement. 

And  this  leads  us  at  once  to  an  explanation  of  the  true 
nature  of  a  bank-bill ;  like  a  bill  of  exchange,  it  is  simply  evi- 
dence of  a  debt,  which  debt  is  transferred  from  hand  to  hand, 
or  exchanged  for  merchandise.  The  bank  which  pays  out  one 
of  its  own  bills,  simply  acknowledges  that  it  is  indebted  for  a 
specified  amount  to  the  person  who  receives  it,  or  to  any  other 
person  to  whom  he  may  transfer  it ;  and  it  promises  to  pay 
this  debt  on  demand  in  specie.  If  the  politicians  who,  at  vari- 
ous times,  have  given  themselves  so  much  trouble  about  the 
repression  of  the  banks,  and  the  establishment  of  an  exclusively 
metallic  currency,  had  known  how  little  difference  there  is  be- 
tween bank-bills  and  the  various  forms  of  bills  of  exchange,  the 
two  really  performing  the  same  functions,  they  might  have  saved 
their  labor.  I  hazard  nothing  by  the  assertion,  that,  if  the  cir- 
culation of  bank-bills  in  this  country  should  be  entirely  stopped 
28* 


330  THE    DISTRIBUTION   OF    GOLD    AND    SILVER: 

by  law,  the  number  and  value  of  these  other  evidences  of  debt 
—  (less  convenient,  indeed,  than  bank-bills,  because  they  re- 
quire indorsement)  —  would  be  so  largely  increased,  as  to  pre- 
vent the  necessity  of  importing  a  much  larger  amount  of  specie. 
Already,  in  England,  where  the  circulation  of  bank-bills  of  a 
lower  denomination  than  five  pounds  sterling,  or  twenty-five 
dollars,  is  prohibited,  numerously  indorsed  bills  of  exchange 
have  come  to  circulate  to  an  immense  amount  as  currency. 
They  are  drawn  to  as  small  an  amount  as  ten  pounds  sterling, 
are  used  by  the  country  farmers  in  making  their  purchases  of 
merchandise,  and  often  come  into  the  hands  of  the  person  in 
London  by  whom  they  are  finally  payable,  with  no  less  than 
forty  indorsements  upon  them.  The  average  amount  of  them 
in  circulation  at  any  one  time  was  calculated  by  Mr.  Leatham, 
an  eminent  banker,  to  be  over  132  millions  sterling,  —  say,  640 
millions  of  dollars.  Imagine  the  loss  of  interest,  and  expen- 
siveness  in  other  respects,  of  an  attempt  to  replace  this  amount 
of  what  is  virtually  paper  currency  by  silver  and  gold! 

And  it  is  a  curious  circumstance,  that  these  domestic  bills  of 
exchange  are  finally  paid  off,  or  cancelled,  without  occasioning 
the  transfer  of  more  than  an  insignificant  fraction  of  money. 
They  are  made  payable  by  some  one  of  the  numerous  banking- 
houses  in  London,  and  when  they  approach  maturity,  they  are 
paid  into,  or  left  to  be  collected  by,  some  other  banking-house. 
"But  the  convenience  of  business,"  says  Mr.  Mill,  "has  given 
birth  to  an  arrangement  which  makes  all  the  banking-houses 
of  the  city  of  London,  for  certain  purposes,  virtually  one 
establishment.  A  banker  does  not  send  the  checks  and  bills, 
which  are  paid  into  his  banking-house,  to  the  banks  on  which 
they  are  drawn,  and  demand  money  for  them.  There  is  a 
building  called  the  Clearing- House,  to  which  every  city  banker 
sends,  each  afternoon,  all  the  checks  and  bills  on  other  bankers 
which  he  has  received  during  the  day,  and  they  are  there  ex- 
changed for  the  checks  on  him  which  have  come  into  the 
hands  of  other  bankers,  the  balances  only  being  paid  in  money. 
By  this  contrivance,  all  the  business  transactions  of  the  city  of 
London  during  that  day,  and  a  vast  amount  besides  of  coun- 
try transactions,  represented  by  bills  which  country  bankers 
have  drawn  upon  their  London  correspondents,"  —  amounting 
in  the  daily  aggregate  nearly  to  fifteen  millions  of  dollars,  — 


SUBSTITUTES    FOR    MONEY.  331 

"  are  liquidated  by  payments  of  money  not  exceeding  on  the 
average  one  million."  The  process  is  so  convenient,  and  saves 
the  handling  of  so  much  money,  that  Clearing-Houses  have 
recently  been  established  in  the  cities  of  New  York  and  Bos- 
ton, where  the  various  banks  effect  their  settlements  with  each 
other  by  exchanging  bank-bills  as  well  as  checks,  and  paying 
off  only  the  balances  in  cash. 

As  the  territory  of  the  United  States  is  very  extensive,  and 
different  portions  of  it  have  their  peculiar  staple  products,  the 
dealings  of  our  merchants  in  drafts  or  domestic  bills  of  ex- 
change are  necessarily  very  heavy.  The  extent  of  the  transac- 
tions in  these  bills  must  be  proportioned  to  the  number  and 
value  of  the  commodities  which  are  interchanged.  The  South 
furnishes  cotton,  rice,  sugar,  and  tobacco,  for  consumption  at 
the  North,  and  for  export  to  foreign  countries ;  and  she  needs 
in  return  the  manufactured  goods  of  the  North,  and  the  foreign 
commodities  which  are  imported  chiefly  into  the  Northern 
ports.  The  West  sends  to  the  Atlantic  States  her  surplus 
product  of  bread-stuffs,  beef,  pork,  hemp,  and  lead,  and  also  re- 
ceives manufactured  and  foreign  goods  in  exchange.  It  is 
easy  to  see,  that  this  immense  internal  traffic  takes  place  in 
great  part  without  the  intervention  of  money,  whether  in  the 
form  of  coin  or  bank-bills.  Drafts  or  domestic  bills  of  ex- 
change are  here  the  great  instruments  of  commerce,  or  the  cir- 
culating medium  that  facilitates  the  interchange  of  commod- 
ities. The  farmer  in  Illinois  or  Michigan  forwards  by  railroad 
his  wheat  and  Indian  corn  to  a  miller  at  Rochester  or  a  mer- 
chant in  New  York,  and  draws  upon  him  for  the  value  of  the 
consignment  at  current  prices.  This  draft  he  transfers  to  his 
neighbor,  a  Western  merchant,  in  payment  for  articles  of 
household  use  and  other  commodities,  with  which  he  has  been 
supplied  throughout  the  year ;  and  the  merchant,  when  he  goes 
to  New  York  to  purchase  a  fresh  stock  of  foreign  and  manu- 
factured goods,  gives  up  this  draft  to  pay  for  them.  The 
whole  series  of  transactions,  representing  all  the  complex  inter- 
changes of  commodities  between  the  East  and  the  West, 
might  be  completed  without  the  intervention  of  a  bank-bill  or 
a  piece  of  coin  in  any  part  of  the  business,  except  perhaps  to 
"  make  change,"  or  settle  a  small  fractional  part  of  an  account. 
The  business  of  the  Southern  planter  is  managed  nearly  in  the 


332  THE    DISTRIBUTION    OF    GOLD    AND    SILVER: 

same  way :  though  the  larger  part  of  his  produce  is  shipped  to 
a  foreign  market,  the  transaction  is  settled  for  him  by  a  draft 
on  a  merchant  in  New  York  or  New  Orleans  ;  and  this  draft, 
after  its  acceptance,  can  be  directly  used  in  the  purchase  of 
commodities.  It  usually  commands  a  small  premium,  or  is 
worth  more  than  cash ;  for  the  currency  of  the  neighborhood, 
being  supplied  by  local  banks,  is  not  available  for  purchases  at 
a  distance,  and  the  transportation  of  specie  is  burdensome  and 
expensive.  A  draft  is  really  the  safest  and  most  convenient 
form  of  money ;  for  as  it  is  indorsed  over  from  one  person  to 
another,  the  danger  of  its  value  being  lost  or  stolen  is  entirely 
obviated.  In  this  commerce  of  the  different  States  and  other 
portions  of  the  country  with  each  other,  as  in  international 
trade,  commodities  are  really  purchased  with  commodities,  and 
the  amount  of  sales  must,  in  the  long  run,  equal  the  amount 
of  purchases ;  otherwise,  the  course  of  exchange  would  turn 
against  the  State  or  district  which  bought  more  than  it  sold, 
and  the  deficiency  would  have  to  be  ultimately  made  up  by  a 
remittance  in  specie,  or  by  diminishing  purchases  and  increas- 
ing sales. 

I  have  been  compelled  to  anticipate  to  a  considerable  degree 
the  explanation  of  the  next  substitute  for  metallic  money  in 
effecting  exchanges  and  payments.  I  refer  to  the  establish- 
ment of  what  are  called  banks  of  deposit,  or  to  one  branch  of 
the  business  performed  by  the  ordinary  banks  in  this  country, 
which  have  in  truth  three  separate  functions,  —  being  banks  of 
issue,  discount,  and  deposit.  Banks  of  deposit  as  first  institut- 
ed, at  Amsterdam,  Hamburg,  and  elsewhere,  were  places 
"where  private  merchants  could  lodge  any  amount  of  local 
national  coin,  of  bullion,  or  of  foreign  coin  reckoned  by  the 
bank  as  bullion ;  and  the  amount  so  lodged  was  entered,  ac- 
cording to  its  value,  as  so  much  money  of  the  national  stand- 
ard. At  the  same  time,  the  bank  opened  an  account  with 
each  merchant,  giving  him  credit  for  the  amount  of  his  deposit. 
Whenever  a  merchant  wanted  to  make  a  payment,  there  was 
no  occasion  to  touch  the  deposit  at  all;  it  was  sufficient  to 
transfer  the  sum  required  from  the  credit  of  the  party  paying 
to  that  of  the  party  receiving.  Thus  values  could  be  trans- 
ferred continually  by  a  mere  transfer  on  the  books  of  the  bank. 
The  whole  operation  was  conducted  without  any  actual  trans- 


SUBSTITUTES    FOR   MONEY.  333 

fer  of  specie ;  the  original  deposit,  which  was  entered  at  its 
intrinsic  value  at  the  time  of  making  it,  remained  as  secu- 
rity for  the  credit  transferred  from  one  person  to  another; 
and  the  specie,  so  lodged  with  the  bank,  was  exempt  from 
any  reduction  of  value  by  wear,  fraud,  or  even  legislative  en- 
actment." 

It  was  presupposed  by  this  arrangement,  that  all  the  mer- 
chants of  the  city  made  thqir  deposits  and  kept  their  accounts 
at  one  and  the  same  institution ;  and  it  answered,  of  course, 
only  for  their  dealings  with  each  other,  and  not  with  the  mer- 
chants of  other  cities  or  of  foreign  lands.  Banks  instituted  ex- 
clusively for  this  purpose  have  died  out,  I  believe,  even  in  the 
places  where  they  originated.  It  has  been  found  more  conven- 
ient to  combine  this  office  with  the  other  functions  exercised 
by  banks.  It  is  performed  by  the  bankers  in  London,  who 
are  associated  into  partnerships,  from  two  to  six  individuals 
usually  forming  one  house,  and  by  all  the  American  banks. 
In  England  as  in  America,  "  it  is  chiefly  in  the  retail  transac- 
tions between  dealers  and  consumers,"  says  Mr.  Mill,  "  and  in 
the  payment  of  wages,  that  money  of  bank-notes  now  pass, 
and  then  only  when  the  amounts  are  small.  Not  only  the 
merchants  and  larger  dealers,  but  persons  of  fortune,  and  all 
shopkeepers  of  any  amount  of  capital  or  extent  of  business, 
deposit  their  spare  cash  reserved  for  immediate  use  in  a  bank, 
and  make  all  payments,  except  very  small  ones,  by  checks.  If 
all  did  business  at  one  bank,  as  we  have  seen,  no  actual  trans- 
fer of  money  would  be  necessary,  but  only  a  transfer  of  credit 
on  the  books.  In  London,  the  institution  of  the  Clearing- 
House  does  virtually  combine  all  the  banks  into  one  for  this 
purpose,  the  checks  being  very  seldom  directly  paid  in  money, 
and  the  accounts  of  the  bankers  with  each  other  being  adjusted 
once  a  day.  In  this  country,  till  recently,  the  checks  were  di- 
rectly paid  by  the  institution  on  which  they  were  drawn ;  but 
all  checks  to  any  considerable  amount  were  paid  in  bills  of  a 
large  denomination,  with  the  expectation  that  these  would  not 
pass  into  general  circulation,  but  would  merely  be  carried  a  few 
steps  in  State  Street  or  Wall  Street,  to  another  bank,  where 
they  would  either  be  taken  in  payment  of  a  note  or  be  lodged  on 
deposit ;  often,  indeed,  they  were  not  carried  out  of  doors  at  all, 
but  were  only  transferred  from  the  paying  to  the  receiving  teller 


334  THE    DISTRIBUTION    OF    GOLD    AND    SILVER. 

of  the  same  institution.  Such  bank-bills  form  no  part  of  the 
currency  properly  so  called ;  they  are  mere  orders  from  one  in- 
stitution to  another  for  the  transfer  of  credits. 

It  will  be  observed  that  I  have  not,  thus  far,  entered  into 
any  consideration  of  proper  bank  currency,  viewed  as  a  substi- 
tute for  gold  and  silver  coin ;  that  topic,  from  its  extent  and 
importance,  must  be  reserved  for  another  chapter.  Yet  we 
have  seen  that  the  largest  operations  of  domestic  and  foreign 
trade  are  carried  on  with  the  intervention  of  very  little  money ; 
that  the  most  important  exchanges  are  effected  without  any 
transfer  of  the  precious  metals ;  and  we  have  already  abun- 
dant reason  to  believe  that,  in  these  modern  times,  the  proper 
sphere  of  money  is  in  retail  transactions,  and  in  answering  fre- 
quent petty  demands.  We  thus  gain  a  more  correct  idea  of 
the  comparatively  limited  functions  of  money,  which  common 
persons  are  led  grossly  to  exaggerate,  merely  because,  at  any 
one  time  and  place,  it  is  a  common  measure  of  value,  a  univer- 
sal denomination  of  account.  All  wealth,  all  commodities,  are 
estimated  in  dollars,  francs,  pounds  sterling,  and  the  like ;  and 
it  is  by  the  aid  of  such  estimates  that  all  exchanges  are  made. 
Thus,  the  idea  of  money  aids  us,  when  the  reality  is  seldom 
employed.  As  pounds  sterling  were  a  universal  denomination 
of  account  for  a  long  period,  during  which  there  was  no  such 
coin  as  a  pound  sterling  in  existence,  so  the  idea,  or  abstract 
conception,  of  numerical  values  expressed  in  coin  would  be  a 
convenient,  even  an  essential,  implement  or  contrivance  in 
mercantile  transactions,  though  all  exchanges  should  be  made 
by  direct  barter  of  one  commodity  for  another.  Without  such 
a  contrivance,  the  merchant  could  not  keep  his  books  of  rec- 
ord intelligibly,  or  preserve  his  accounts  with  individuals  in 
his  large  and  complicated  business.  Money  is  even  now  only 
a  hypothetical  or  abstract  medium  of  exchange  in  all  the  larger 
transactions  of  commerce.  I  almost  anticipate  the  time,  in  the 
progress  of  invention  and  the  discovery  of  new  expedients  and 
facilities  in  commerce,  when  it  will  become  so  universally ; 
when,  at  any  rate,  so  costly  and  useless  a  realization  of  the 
idea  as  gold  and  silver  coin  will  be  entirely  done  away.  Only 
practical  difficulties,  or  what  may  be  called  difficulties  of  de- 
tail, even  now  obstruct  this  desirable  consummation. 


BANKS  AND  BANK  CURRENCY.  335 


CHAPTER  XX. 

THE  FUNCTIONS  OP  BANKS  AND  THE  NATURE  OF  BANK-NOTES: 
THE  OPERATIONS  OF  CREDIT. 

WHILE  treating  of  banks  and  bank  currency,  the  subjects  of 
the  present  chapter,  I  shall,  in  order  to  avoid  confusion,  refer 
only  to  the  banking  system  established  in  this  country,  and 
especially  here  in  New  England ;  at  any  rate,  the  references  to 
the  Bank  of  England  and  other  foreign  institutions  will  be 
only  incidental,  to  elucidate  the  operations  of  our  own  banks. 
It  has  been  said  that  our  banks  have  properly  three  functions, 
or  that  they  are  banks  of  deposit,  discount,  and  circulation.  I 
have  briefly  explained  the  first  of  these  three  offices,  —  that 
of  deposit,  and  have  shown  the  benefits  resulting  from  it. 
Through  this  function  of  the  banks,  dealers  are  released  from 
the  necessity  of  counting  over  large  sums  of  money  in  order  to 
make  or  receive  payments,  and  from  the  risk  of  keeping  such 
large  sums  by  them  in  their  own  establishments,  where  they 
would  be  exposed  to  thieves,  fire,  and  other  casualties.  They 
are  enabled  to  make  and  receive  large  payments  by  mere  slips 
of  paper,  which  are  only  orders  for  the  transfer  of  credit,  on  the 
books  of  the  bank,  from  the  account  of  one  person  to  that  of 
another.  Their  money,  being  useless  to  them  except  for  the 
purpose  of  effecting  these  transfers  of  credit,  is  left  undisturbed 
in  the  vaults  of  the  banks ;  and  these  institutions,  being  able 
to  calculate  the  average  amount  thus  left  with  them  continu- 
ally, are  enabled  to  use  it  over  again,  or  to  lend  it  to  then-  cus- 
tomers ;  for  credits  can  be  equally  well  transferred  on  the  bank 
books,  whether  the  money  represented  by  these  credits  is  actu- 
ally in  the  bank  safe,  or  in  the  hands  of  a  person  to  whom  the 
bank  chooses  to  lend  it,  and  who  may  be  regarded  for  this  pur- 
pose as  its  agent  or  cash-keeper,  —  the  bank,  of  course,  being 
responsible  for  him,  or  engaging  to  repay  the  money,  if  he 
does  not. 

I  find,  by  the  latest  returns  of  all  the  banks  in  Massachusetts, 
that  the  sums  thus  deposited  with  them  amount  to  little  less 


336  BANKS  AND  BANK  CURRENCY. 

than  twenty-two  millions  of  dollars,  and  that  the  banks,  in  fact, 
let  out  every  dollar  of  this  sum  to  other  persons,  receiving  in- 
terest therefor ;  I  say  the  banks  let  out  all  the  deposits,  because 
the  specie  actually  held  by  these  institutions  in  their  vaults  is 
more  properly  regarded  as  a  security  for  their  circulation  than 
for  their  deposits.  Observe,  now,  the  economizing  effect  of 
the  banks  in  regard  to  the  use  of  money.  It  appears  that  the 
merchants  and  other  capitalists  of  this  State,  in  order  to  be  pre- 
pared for  sudden  calls  and  daily  emergencies,  find  it  necessary 
to  keep  sums  of  money  by  them  or  on  hand,  which  amount  in 
the  aggregate  to  twenty-two  millions  of  dollars.  If  there  were 
no  banks,  this  great  sum  of  gold  and  silver,  divided  into  many 
parcels,  must  remain,  disused  and  rusting,  (if  the  precious  met- 
als did  rust,)  in  safes,  tills,  and  drawers.  There  would  be  a 
loss  of  profit  or  interest  on  the  whole  amount.  Through  the 
machinery  of  the  banks,  these  many  parcels  are  collected  to- 
gether, and  while  their  owners  have  just  as  much  the  benefit 
of  them  as  ever,  —  that  is,  can  effect  all  their  payments  equally 
well,  and  save  the  trouble  of  counting  the  money  to  boot,  — 
the  banks  put  all  the  money  into  profitable  use,  or^convert  it 
from  dead  into  active  capital.  The  saving  thus  effected  to  the 
State  of  Massachusetts,  reckoning  it  only  at  the  rate  of  legal  in- 
terest, is  six  per  cent  on  twenty-two  millions,  or  $  1,320,000  a 
year.  In  places  where  there  are  no  banks,  —  in  Valparaiso, 
South  America,  for  instance,  —  there  is  more  than  one  large 
mercantile  firm  which,  on  account  of  the  extent  of  its  transac- 
tions, is  obliged  to  keep,  on  an  average,  at  least  $  100,000  in 
gold  coin  constantly  in  its  safe  ;  this  is  so  much  subtracted  from 
its  active  capital,  and  the  annual  rate  of  profit  there  being  at 
least  as  high  as  ten  per  cent,  the  annual  loss  to  such  a  house 
equals  ten  thousand  dollars. 

The  discounting  operations  of  the  banks,  which  are  their 
chief  function  in  this  country,  lead  directly  to  an  explanation 
of  the  system  of  credit,  —  a  system  which  plays  so  important  a 
part  in  the  theory  of  wealth,  and  in  all  mercantile  transactions, 
that  it  needs  to  be  very  plainly  and  fully  set  forth.  "  The 
functions  of  credit  have  been  a  subject  of  as  much  misunder- 
standing, and  as  much  confusion  of  ideas,  as  any  single  topic 
in  Political  Economy.  This  is  not  owing  to  any  peculiar  dif- 
ficulty in  the  theory  of  the  subject,  but  to  the  complex  nature 


BANKS  AND  BANK  CURRENCY.  337 

of  some  of  the  mercantile  phenomena  arising  from  the  forms 
in  which  credit  clothes  itself;  by  which  attention  is  diverted 
from  the  properties  of  credit  in  general,  to  the  peculiarities  of 
its  particular  forms." 

Credit  may  be  briefly  defined  as  a  means  of  putting  capital 
into  the  hands  of  those  who,  for  the  time  being,  can  use  it  to 
the  best  advantage,  though  they  are  not  the  owners  of  it.  The 
utility  and  profits  of  capital  depend,  as  we  have  seen,  upon  its 
activity,  upon  the  speed,  skill,  and  judgment  with  which  it  is 
consumed  and  reproduced.  The  capitalist  himself  may  be  de- 
ficient in  all  the  important  requisites  for  managing  his  own 
property ;  he  may  have  inherited  it,  and  therefore  have  had  no 
experience  in  the  mode  of  acquiring  and  using  it ;  or  from  the 
very  fact  that  he  is  a  capitalist,  or  a  man  of  fortune,  he  may 
not  be  willing  to  give  time  and  labor  to  its  superintendence, 
preferring  to  consult  his  own  ease  and  amusement ;  or  his  cap- 
ital may  be  so  large,  that,  although  in  active  business  himself, 
he  may  not  be  able  to  superintend  or  manage  the  whole  of  it, 
but  may  feel  obliged  to  lend  a  large  portion  of  it.  From  these 
various  circumstances,  there  is  always,  in  every  wealthy  com- 
munity, a  vast  amount  of  capital  to  lend,  —  much  more  than 
is  generally  supposed.  For  capitalists,  banks,  and  other  lend- 
ing institutions  are  commonly  thought  to  manage  and  superin- 
tend their  own  property,  when  they  simply  direct  its  invest- 
ment, or  determine  to  what  persons  or  institutions  they  will  by 
preference  lend  it.  But  not  so.  The  real  manager  of  capital 
is  he  in  whose  hands  it  exists,  not  in  the  form  of  money, 
stocks,  or  other  securities,  but  in  the  form  of  goods,  —  whether 
of  raw  material  to  be  manufactured,  or  of  tools  and  machinery 
for  manufacture,  or  of  ships  and  other  means  of  transport,  or 
of  merchandise  for  transport  and  sale.  There  may  be  half  a 
dozen  applications  of  credit,  half  a  dozen  lendings,  between  the 
proper  owner  and  this  manager  of  the  capital.  For  instance, 
the  owner  may  prefer  to  lend  his  capital  to,  or  invest  it  in,  a 
bank ;  the  bank  may  lend  it  to  a  broker ;  the  broker  may  em- 
ploy it  in  buying  up  a  promissory  note ;  and  the  original  giver 
or  promisor  of  this  note  is  probably  he  in  whose  hands  the 
actual  property  represented  by  all  these  transactions  is  really 
placed,  for  the  time  being.  He  is  the  manager  of  the  capital, 
whose  true  owner  is  not  probably  known  to  him  even  by  name. 
29 


338  BANKS  AND  BANK  CURRENCY. 

And  here  we  must  again  remark,  that  the  true  subject  of 
credit,  that  which  is  lent,  and  for  which  interest  is  paid,  is  not 
money,  but  merchandise,  or  some  one  of  the  myriad  forms  of 
material  wealth.  Money,  as  such,  it  has  been  demonstrated 
again  and  again,  bears  no  profit,  and  therefore  yields  no  inter- 
est. What  the  merchant  or  other  needy  person  actually  bor- 
rows, is  not  the  little  slip  of  paper,  called  a  check,  that  he  carries 
to  the  bank ;  nor  yet  the  bank-bills  which  he  receives  in  pay- 
ment of  the  check ;  nor  even  the  gold  and  silver  coin,  which,  if 
he  chooses,  he  can  obtain  for  the  bank-notes.  The  proof  that 
these  things  are  not  what  he  really  borrows  for  six  months,  a 
year,  or  some  other  period,  is,  that  he  endeavors  to  get  rid  of 
these  things  as  soon  as  he  can ;  if  possible,  on  the  very  day  on 
which  he  received  them.  He  no  more  thinks  of  keeping  the 
bank-notes  or  coin  on  hand,  than  of  retaining  the  check  in  his 
possession.  What  he  really  keeps  for  the  six  months  or  year, 
and  therefore  what  he  really  borrows  and  pays  interest  for,  is 
the  goods  which  he  purchases  with  the  bank-bills.  A  capital- 
ist's property,  though  it  may  exist  under  his  own  eye  only  in 
the  shape  of  notes,  bank-bills,  stocks,  and  other  representatives 
of  wealth,  does  not  actually  consist  in  them,  but  in  merchan- 
dise, or  articles  of  material  wealth,  which,  in  many  cases,  he 
has  never  seen;  and  these  are  what  he  lends  upon  interest 
There  is  always  a  vast  amount  of  such  capital  in  being,  which 
is  not  managed  by  its  proper  owners. 

On  the  other  hand,  as  Mr.  Mill  remarks,  credit  is  "  the  means 
by  which  the  industrial  talent  of  the  country  is  turned  to  most 
account  for  purposes  of  production.  Many  a  person,  who  has 
either  no  capital  of  his  own,  or  very  little,  but  who  has  qualifi- 
cations for  business  which  are  known  and  appreciated  by  some 
persons  of  capital,  is  enabled  to  obtain  either  advances  in  mon- 
ey, or  more  frequently  goods  on  credit,  by  which  his  industrial 
capacities  are  made  instrumental  to  the  increase  of  the  public 
wealth ;  and  this  benefit  will  be  reaped  far  more  largely,  when- 
ever, through  better  laws  and  better  education,  the  community 
shall  have  made  such  progress  in  integrity,  that  personal  char- 
acter can  be  accepted  as  a  sufficient  guaranty,  not  only  against 
dishonestly  appropriating,  but  against  dishonestly  risking,  what 
belongs  to  another."  Every  act  of  legislation,  which,  however 
benevolent  in  design,  really  diminishes  the  security  of  creditors, 


BANKS  AND  BANK  CURRENCY.  339 

is  an  act  inflicting  hardship  and  wrong  on  the  very  class  of 
persons  whom  it  is  intended  to  benefit,  —  the  class  who  have 
not  so  much  capital  as  capacity  to  use  it,  and  who  must,  there- 
fore, depend  on  credit  as  the  only  means  of  turning  their  tal- 
ents to  account. 

Another  occasion  for  giving  credit  arises  from  the  varying 
demands  for  capital  in  different  employments.  One  who  has 
capital  enough  for  the  average  demands  of  his  business  may 
find,  owing  to  the  fluctuations  of  trade,  that,  at  one  period, 
half  of  his  whole  capital  would  remain  useless  for  some 
months,  if  he  could  not,  during  that  time,  lend  it  to  another ; 
and  at  another  period,  that  the  productiveness  of  his  own  stock 
would  be  greatly  enhanced  if  he  could  increase  it  by  one  half 
for  a  few  months.  In  other  words,  in  order  that  his  business 
may  be  most  profitably  and  most  economically  managed,  he 
must  have  the  power  of  varying  the  amount  of  capital  engaged 
in  it  from  one  month  to  another. 

Now,  it  is  the  chief  function  of  banks  in  this  country  to  pro- 
mote and  facilitate  these  operations  of  credit,  and  thereby  to 
economize  both  the  capital  and  the  industrial  talent  of  the  na- 
tion, allowing  no  portion  of  either  to  remain  unemployed  even 
for  a  few  weeks.  They  bring  borrowers  and  lenders  together ; 
they  allow  an  individual  to  borrow  this  month  and  to  lend  the 
next,  —  nay,  to  borrow  to-day  and  to  lend  to-morrow,  according 
to  his  varying  occasions,  necessities,  and  inclinations.  They 
do  not,  in  this  part  of  their  office,  directly  add  to  the  productive 
wealth  of  the  country ;  but  they  keep  what  there  is  in  the  high- 
est possible  activity,  and  cause  it  to  be  applied  constantly  to 
the  best  advantage.  Credit,  however  enlarged,  cannot  increase 
capital,  cannot  create  wealth,  whether  productive  or  unproduc- 
tive. It  can  only  transfer  from  one  hand  to  another  the  wealth 
already  in  being.  "  Credit  has  a  great,  but  not,  as  many  peo- 
ple seem  to  suppose,  a  magical  power;  it  cannot  make  some- 
thing out  of  nothing.  If  the  borrower's  means  of  production 
and  of  employing  labor  are  increased  by  the  credit  given  him, 
the  lender's  are  as  much  diminished.  It  is  true  that  the  capi- 
tal which  A  has  borrowed  from  B,  and  makes  use  of  in  his 
business,  still  forms  part  of  the  wealth  of  B  for  other  purposes ; 
he  can  enter  into  engagements  in  reliance  on  it,  and  can  even 
borrow,  when  needful,  an  equivalent  sum  on  the  security  of  it ; 


340  BANKS  AND  BANK  CURRENCY. 

so  that,  to  a  superficial  eye,  it  might  seem  as  if  both  B  and  A 
had  the  use  of  it  at  once.  But  the  smallest  consideration  will 
show,  that,  when  B  has  parted  with  his  capital  to  A,  the  use 
of  it  as  capital  rests  with  A  alone,  and  that  B  has  no  other  ser- 
vice from  it  than  in  so  far  as  his  ultimate  claim  upon  it  serves 
him  to  obtain  the  use  of  another  capital  from  a  third  person,  C. 
All  capital,  (not  his  own,)  of  which  any  person  has  really  the 
use,  is,  and  must  be,  so  much  subtracted  from  the  capital  of 
some  one  else."  * 

We  are  now  prepared  to  explain  the  nature  and  functions  of 
a  bank ;  and  I  will  take,  for  this  purpose,  one  of  the  simplest 
cases,  —  a  bank  established  in  one  of  our  New  England  coun- 
try towns,  with  a  capital  of  not  more  than  $  100,000.  We 
will  suppose  that  this  town,  originally  without  any  institution 
of  the  kind,  has  gone  on  increasing  in  population,  manufac- 
tures, wealth,  and  trade.  There  are  now  a  number  of  persons 
in  it,  of  easy  circumstances,  who  still  make  savings  from  in- 
come, but  have  not  the  inclination,  or  perhaps  the  capacity,  to 
employ  these  savings  profitably  in  any  active  business.  These 
have  capital  to  lend ;  and  there  are  others  in  the  town,  young 
tradesmen  and  manufacturers,  who  have  not  capital  enough  to 
give  full  scope  to  their  industry,  talents,  and  enterprise,  and 
who  are  therefore  eager  to  borrow.  But  the  borrower  may 
often  have  much  difficulty  in  finding  a  lender  who  has  to  spare 
just  the  sum  that  he  wants,  and  for  the  time  that  he  wants  it ; 
and  even  the  lender  may  often  have  a  portion  of  his  spare  cap- 
ital lying  idle  for  weeks,  and  even  months,  before  he  can  find 
borrowers  who  will  take  it  all  on  good  security,  and  pay  inter- 
est for  it  at  short  periods.  Still  further,  the  traders  in  the  town, 
as  we  have  seen,  may  have  frequent  occasion  both  to  lend  and 
to  borrow,  according  to  the  varying  demands  of  their  business. 
When  their  stock  is  low,  they  may  have  a  considerable  sum 
on  hand  or  unemployed,  which  they  would  be  glad  to  let  otft 
at  interest  if  they  could  be  sure  of  obtaining  it  again  as  soon 
as  needed,  or  whenever  a  favorable  opportunity  offered  for  pur- 
chasing an  additional  stock  of  goods.  But  it  would  be  diffi- 
cult, if  not  impossible,  to  find  a  borrower  who  would  take  it 
upon  these  terms ;  for  interest  can  be  paid  only  out  of  profits, 

*  J.  S.  Mill's  Political  Economy,  Vol.  II.  p.  36. 


BANKS  AND  BANK  CURRENCY.  341 

and  capital  cannot  be  put  to  a  profitable  use  without  engaging 
it  in  some  occupation  from  which  it  could  not  be  withdrawn 
at  a  moment's  notice.  The  traders,  however,  would  be  willing 
to  lend  their  surplus  capital  for  a  fixed  period,  say  three  or  six 
months,  if  there  were  some  institution  in  the  town  from  which 
they  could  be  sure  of  obtaining  a  loan  to  an  equivalent  or 
greater  amount,  if  any  occasion  shoulo!  arise  for  the  use  of  the 
funds  before  the  period  of  three  or  six  months  had  elapsed. 

It  will  be  for  the  convenience  of  all  parties,  then,  to  have  a 
central  office  in  town,  where  all  can  come  who  wish  to  borrow, 
and  whither  all  capital  may  be  carried  which  craves  invest- 
ment in  this  form.  The  lenders  and  traders,  therefore,  obtain 
a  charter  of  incorporation  as  a  bank,  as  they  find  that,  by  club- 
bing their  means,  they  can  raise  a  capital  of  $  100,000.  They 
are  willing  to  put  all  the  capital  they  can  possibly  spare  into 
such  an  institution,  because,  their  stock  in  the  bank  being 
transferable,  they  can  readily  borrow  money  elsewhere,  or  at 
the  bank  itself,  by  offering  this  stock  as  security,  or  they  can 
sell  the  stock  if  they  desire  to  regain  their  whole  capital.  Hav- 
ing procured  a  banking-room,  and  a  competent  person  as  cash- 
ier, they  can  commence  operations  by  lending  every  dollar  of 
their  capital,  which  was  paid  in  only  for  the  purpose  of  being 
lent.  They  gain  a  trifling  advantage,  also,  by  letting  their 
capital  only  for  short  periods,  from  two  to  six  months ;  thus 
obtaining  compound  interest  a  part  of  the  time,  the  money 
received  for  interest  being  often  let  out  as  well  as  the  capital, 
before  the  time  arrives  for  the  semiannual  payments  to  their 
stockholders. 

This  small  gain,  however,  would  not  by  any  means  defray 
their  expenses  for  banking-room,  cashier,  &c. ;  and  if  the  bank 
had  no  other  source  of  revenue,  it  could  not  divide  six  per  cent 
a  year  to  its  stockholders ;  for  it  only  receives  a  trifle  over  six 
per  cent  on  the  capital,  and  the  banking  expenses  must  be  de- 
ducted. But,  for  reasons  already  explained,  all  persons  in 
town,  having  cash  on  hand  for  their  daily  emergencies,  are 
ready  and  eager  to  deposit  this  cash  in  bank,  the  institution 
undertaking  to  keep  it  safely,  and  with  it  to  manage  all  their 
payments  for  them,  and  to  return  it  on  demand.  Such  depos- 
its, therefore,  though  always  coming  and  going,  may  amount 
on  an  average  to  $  25,000,  or  one  fourth  of  the  bank  capital. 
29* 


342  BANKS  AND  BANK  CURRENCY. 

The  bank  pays  no  interest  on  this  sum,  but  receives  interest 
for  it ;  for  it  is  able  to  let  out  the  whole,  only  taking  care  to  let 
it  for  short  periods,  so  that  it  may  be  within  reach,  as  it  were, 
if  suddenly  called  for.  Thus  far,  then,  the  bank,  with  only 
$  100,000  of  capital,  receives  interest  on  $  125,000,  and  is  thus 
in  a  fair  way  to  pay  its  expenses,  and  still  yield  six  per  cent  to 
its  stockholders.  It  should  be  observed,  that  the  whole  amount 
of  its  deposits  cannot  be  suddenly  called  for,  nor  even  a  con- 
siderable portion  of  them.  These  deposits  consist  in  great  part 
of  the  funds  which  the  various  customers  of  the  bank  are  con- 
stantly transferring  from  one  to  another,  in  the  settlement  of 
their  accounts  with  each  other ;  and  these  transfers  are  made 
upon  the  bank-books,  as  already  explained,  without  any  neces- 
sity of  ever  withdrawing  the  sum  from  the  custody  of  the  in- 
stitution. 

The  usual  mode  in  which  banks  lend  their  capital  and  other 
funds  to  their  customers  is,  by  discounting  promissory  notes. 
We  shall,  therefore,  gain  a  clearer  view  of  their  second  func- 
tion, as  banks  of  discount,  by  looking  closely  into  the  origin 
and  character  of  such  notes.  It  is  usual  in  every  trade  to  give 
a  certain  length  of  credit  for  goods  bought,  —  six  or  eight 
months,  or  even  a  year,  according  to  the  custom  in  the  partic- 
ular trade.  This  length  of  credit  is  virtually  offered  to  the 
purchaser  as  an  inducement  to  him  to  pay  a  higher  price  for 
the  goods  bought ;  he  is  offered  either  six  months'  credit,  or  a 
discount  of  five  per  cent  from  the  price  demanded,  though  the 
usual  rate  of  interest  for  six  months  is  but  three  per  cent ;  and 
in  nine  cases  out  of  ten,  the  purchaser  decides  to  take  the 
credit  rather  than  the  diminished  price.  The  seller  offers  this 
credit,  though  he  is  in  truth  not  able  to  offer  it,  but  needs  his 
capital  returned  immediately.  He  offers  it,  however,  because 
he  knows  he  can  sell  this  note  to  the  bank,  or  transfer  the  debt 
to  it,  receiving  the  amount  minus  the  interest  for  the  time  it 
has  still  to  run.  It  might  seem  to  be  a  less  circuitous  and  less 
costly  mode  of  transacting  the  business,  if  the  purchaser  of  the 
goods,  instead  of  paying  five  per  cent  for  six  months'  credit, 
should  himself  obtain  a  loan  from  the  bank  of  the  necessary 
sum  at  only  three  per  cent,  and  thus  be  enabled  to  pay  for  his 
goods  with  ready  money.  But  then  the  bank,  for  its  own 
security,  requires  two  persons  to  become  responsible  for  the 


BANKS  AND  BANK  CURRENCY.  343 

repayment  of  the  loan,  these  two  usually  being  the  signer  and 
an  indorser  of  the  note.  The  buyer  can  only  offer  his  own 
personal  security,  which  is  not  enough ;  the  seller  can  offer  a 
note  signed  by  the  buyer,  and  indorsed  by  himself,  so  as  to 
complete  the  requisite  guaranty.  The  real  nature  of  the  trans- 
action, then,  is  as  follows :  the  seller,  in  order  to  enable  a 
customer  to  buy  his  goods,  obtains  for  him  from  the  bank  a 
six  months'  loan  of  the  purchase-money,  charging  him  two  per 
cent  for  this  service  and  for  guaranteeing  the  repayment  to 
the  bank. 

It  is  the  chief  function  of  the  banks  to  discount  or  buy  such 
notes,  which  are  called  real  or  business  paper,  to  distinguish 
them  from  another  class  of  notes,  which  are  denominated  ficti- 
tious or  accommodation  paper,  because  they  are  not  grounded 
on  any  debt  previously  due  from  the  promisor  to  the  indorser. 
"  Real  notes  (it  is  sometimes  said)  represent  actual  property. 
There  are  actual  goods  in  existence,  which  are  the  counterpart 
to  every  real  note.  Notes  which  are  not  drawn  in  consequence 
of  a  sale  of  goods,  are  a  species  of  false  wealth,  by  which  a 
nation  is  deceived.  These  supply  only  an  imaginary  capital ; 
the  others  indicate  one  that  is  real."  * 

But  there  are  no  good  grounds  for  this  distinction  and  pref- 
erence. A  loan  obtained  by  a  purchaser,  on  a  note  indorsed 
by  a  friend,  may  be  applied  to  the  purchase  of  goods,  just  as 
much  as  if  the  note  were  indorsed  by  the  person  who  sold 
those  goods.  Then  there  may  be  actual  commodities  or  values 
corresponding  to  the  accommodation  or  fictitious  paper,  as  well 
as  to  real  notes ;  the  wealth  is  no  more  fictitious,  nor  are  the 
pretences  on  which  the  loan  is  obtained  more  unfounded  or 
fraudulent,  in  the  one  case  than  in  the  other.  Again,  though 
all  the  notes  should  be  given  as  the  results  of  actual  sales  of 
commodities,  it  is  by  no  means  certain  that  these  commodities 
are  equal  in  value  to  the  whole  (aggregate)  amount  for  which 
the  notes  are  given ;  for  the  same  goods  may  be  sold  over  and 
over  again  by  successive  purchasers,  so  that  there  may  be  many 
notes,  each  representing  the  whole  value  of  one  and  the  same 
parcel  of  goods.  For  instance,  A  may  sell  $  1,000  worth  of 
merchandise  to  B,  and  receive  therefor  B's  note  at  six  months ; 

*  H.  Thornton's  Inquiry  into  the  Nature  and  JSjfects  of  Paper  Credit. 


344  BANKS  AND  BANK  CURRENCY. 

within  a  week,  B  may  sell  the  same  goods  to  C,  and  receive 
his  note  for  the  same  sum ;  C  may  soon  dispose  of  them  in 
like  manner,  and  receive  a  third  note.  Before  six  months  have 
elapsed,  there  may  be  a  dozen  such  notes  in  being,  all  of  which 
may  possibly  be  discounted  at  the  same  bank ;  yet  only  one  of 
them  represents  any  actual  property. 

Up  to  this  point,  be  it  observed,  there  has  been  no  mention 
of  bank-notes,  or  of  the  issue  of  a  substitute  for  specie  curren- 
cy. The  bank  might  exist,  might  exercise  the  two  functions 
now  explained  of  deposit  and  discount,  and  pay  dividends  of 
a  reasonable  amount  to  its  stockholders,  though  the  currency 
of  a  country  should  consist  exclusively  of  gold  and  silver.  The 
establishment  of  the  bank  would  lessen  the  amount  of  these 
two  metals  required  for  making  exchanges,  —  would  limit  them 
in  great  part  to  the  retail  trade,  or  to  transactions  between 
dealers  and  consumers,  —  the  business  of  dealers  with  each 
other  being  adjusted  almost  exclusively  by  checks  transferring 
deposits.  But  it  now  becomes  a  question  whether  the  precious 
metals  may  not  be  dispensed  with,  even  for  this  service.  They 
are  used  only  to  be  passed  from  hand  to  hand ;  their  material 
and  specific  qualities  —  their  hardness,  weight,  &c.  —  are  not 
needed  to  fit  them  for  such  transfer.  A  scrap  of  paper  would 
answer  just  as  well  to  be  passed  about,  provided  only  that  the 
receiver  of  it  felt  secure  that  it  would  not  diminish  in  value 
while  in  his  keeping,  or  that  his  neighbor  would  always  be 
willing  to  receive  it  on  the  same  valuation  upon  which  it  had 
come  into  his  own  hands.  Instead  of  effecting  a  purchase 
with  five  hard  and  weighty  silver  dollars,  it  would  be  even 
more  convenient  to  effect  it  with  a  scrap  of  paper,  which  the 
holder  is  sure  of  being  able  to  exchange  at  any  moment,  and 
without  difficulty,  for  that  sum  in  specie.  The  bank,  having 
relieved  the  large  dealers  from  the  necessity  of  using  specie 
through  its  system  of  checks  and  deposits,  may  now  relieve  the 
smaller  ones,  and  the  community  generally,  from  such  neces- 
sity, by  issuing  its  own  notes  for  small  sums,  payable  on  de- 
mand in  gold  or  silver  at  its  own  counter.  In  its  immediate 
vicinity,  such  notes  would  evidently  be  preferred  to  coin,  on 
account  of  their  superior  convenience;  beyond  that  vicinity, 
they  would  not  circulate,  because  the  distance  would  oppose 
an  obstacle  to  their  immediate  conversion  into  cash,  and  be- 


BANKS  AND  BANK  CURRENCY.  345 

cause  the  circumstances  and  solvency  of  the  bank  could  not  be 
so  well  known  at  a  distance. 

To  return  to  the  bank  with  $  100,000  of  capital,  which  was 
taken  as  an  example  to  illustrate  the  theory  of  these  institu- 
tions ;  we  have  seen  that  its  capital  and  deposits  combined 
would  enable  it  to  make  loans  on  interest  to  the  amount  of 
$  125,000.  If  we  suppose  that  it  can  raise  its  circulation  to 
$  50,000  by  keeping  only  10,000  specie  dollars  in  reserve,  it 
is  evident  that  $  40,000  will  be  added  to  its  productive  means  ; 
or  that  it  will  now  be  able  to  lend  on  interest  $  165,000.  It 
can  then  easily  pay  its  banking  expenses,  pay  6  or  7  per  cent 
on  its  capital  to  the  stockholders,  and  still  have  a  small  surplus 
to  meet  the  contingency  of  some  loans  made  by  it  not  being 
repaid,  —  or,  in  other  words,  to  make  up  for  bad  debts.  How 
this  excess  of  circulation  over  the  specie  held  in  reserve  is  so 
much  added  to  its  productive  means,  appears  very  easily  on  a 
little  reflection.  After  it  has  lent  out  all  its  capital  and  all  its 
deposits,  it  can  still  lend  its  own  notes,  or  its  own  promises  to 
pay  specie  on  demand,  which  will  circulate  as  readily  as  hard 
money,  and  for  which,  therefore,  the  borrower  will  pay  as  much 
interest  as  for  hard  money. 

Under  ordinary  circumstances,  it  is  certain  that  one  dollar 
in  specie  held  by  the  banks  is  a  safe  basis  for  the  circulation  of 
three  or  four  dollars  in  paper ;  for  paper  being  equally  avail- 
able with  specie  for  all  domestic  purposes,  and  far  more  con- 
venient, it  would  be  strange  indeed,  if  the  inhabitants  of  any 
town  or  the  people  of  any  country  should  suddenly  have  occa- 
sion to  send  abroad,  or  out  of  their  own  precincts,  a  sum  in 
specie  equal  to  one  third  or  one  fourth  of  their  whole  paper  cir- 
culation. Such  an  export  from  the  United  States  would 
amount  perhaps  to  sixty  or  seventy  millions  in  specie,  —  a 
drain  upon  the  currency  quite  sufficient  to  so  far  raise  the 
value  of  what  money  remained  behind,  that  the  prices  of  all 
commodities  would  inevitably  fall  Tnuch  below  the  average, 
and  there  would  consequently  be  an  irresistible  temptation  to 
export  merchandise  and  import  bullion. 

But  the  great  danger  to  the  circulation  of  the  banks  arises, 
not  from  the  possibility  of  a  sudden  demand  for  a  great  amount 
of  specie  to  be  sent  abroad,  but  from  the  occurrence  of  one  of 
those  panics  among  the  people,  which  are  not  infrequently 


346  BANKS  AND  BANK  CURRENCY. 

caused  by  commercial  crises,  or  by  the  failure  of  one  or  more 
large  banks  through  the  gross  mismanagement  or  fraud  of  their 
directors,  —  a  failure  which,  among  the  ill-informed,  of  course 
excites  suspicions  as  to  the  soundness  of  all  the  other  banks. 
Against  such  panics,  in  truth,  there  is  no  adequate  protection, 
except  the  diffusion  among  the  people  of  a  knowledge  of  the 
theory  and  practice  of  banking,  —  a  knowledge  which  would 
teach  them  that,  by  yielding  to  the  excitement,  and  joining  in 
the  run  upon  the  banks,  they  are  acting  directly  against  their 
own  interests,  which  are  not  otherwise  in  jeopardy.  An  anec- 
dote is  told  of  an  eccentric  banker,  who,  when  a  great  crowd 
had  collected  about  his  doors,  in  consequence  of  one  of  these 
unreasoning  excitements,  came  out  and  pushed  them  away 
with  great  violence  of  gesticulation,  exclaiming,  "  Go  away, 
you  foolish  people !  or  I  will  break,  and  ruin  every  man  among 
you."  He  was  quite  right;  in  every  bank  that  is  managed, 
I  will  not  say,  with  common  ability  and  discretion,  but  with 
common  honesty,  the  capital  and  other  resources  so  largely  ex- 
ceed the  circulation,  that  it  is  impossible  for  the  notes  to  fail 
of  being  ultimately  redeemed  in  specie.  In  the  case  of  the 
bank  which  has  been  taken  as  an  example,  the  assets  are,  the 
notes  and  bills  of  individuals,  which  it  has  bought  or  dis- 
counted to  the  amount  of  $  165,000,  and  $  10,000  in  specie, 
making  an  aggregate  of  $  175,000,  as  a  fund  for  the  redemp- 
tion of  only  $  50,000  in  its  own  paper.  If  less  than  one  fourth 
of  these  notes  of  individuals  are  duly  paid  at  maturity,  the 
bank-notes  cannot  fail  to  be  redeemed  in  full ;  and  without  a 
breach  of  honesty,  it  is  certainly  impossible  that  the  directors  of 
any  institution  should  let  out  their  own  money  and  that  of 
others  in  such  a  manner  as  to  lose  more  than  four  fifths  of  it. 
But  a  great  panic  may  bring  home  upon  the  bank  more  than 
one  fourth  of  its  circulation  in  one  day,  each  holder  of  its  notes 
being  anxious  to  secure  himself,  and  careless  of  the  effect  upon 
others.  In  this  case,  the  bank  would  be  obliged  to  suspend 
specie  payments,  its  notes  would  be  dishonored  and  conse- 
quently depreciated,  merchants  would  be  deprived  of  their  de- 
posits and  customary  facilities  at  the  banks,  in  consequence  of 
which  they  also  would  fail  to  redeem  their  own  notes  due  to 
the  bank,  and  a  general  sacrifice  or  destruction  of  property 
would  ensue. 


BANKS  AND  BANK  CURRENCY.  347 

There  is  one  rale  for  the  proper  management  of  a  bank,  by 
which  the  danger  of  such  a  catastrophe  is  very  much  lessened ; 
I  refer  to  the  rule  for  not  discounting  any  but  what  is  called 
"  short  paper,"  or  not  buying  any  notes  which  have  more  than 
a  few  months  to  run.  If  the  bank  lends  all  its  available  means 
for  a  period  as  long  as  six  months,  the  receipts  and  loans  being 
pretty  equally  distributed  through  all  the  business  days  of  those 
months,  it  is  evident  that  the  daily  receipts  from  loans  repaid 
would  be  equal  to  the  whole  amount  lent  divided  by  the  whole 
number  of  days  for  which  it  was  lent ;  that  is,  in  the  case  of 
the  bank  we  have  taken  for  an  example,  $  165,000  -r-  180,  or 
about  $  916,  for  the  daily  receipts.  If  two  months  were  the 
limit  fixed,  then  the  whole  capital  would  be  turned  over,  or  paid 
in  and  let  out  again,  once  in  every  sixty  days ;  and  the  daily  re- 
ceipts would  be  about  $  2,748.  If,  on  the  other  hand,  a  year 
was  the  limit,  the  receipts  each  day  would  be  only  $458. 
Now,  if  we  suppose  that  a  ran  takes  place  upon  such  a  bank, 
it  would  probably  take  two  days  to  exhaust  its  stock  of  specie, 
$  10,000,  which  was  held  in  reserve.  During  the  continuance 
of  the  run,  the  bank's  daily  receipts  would  also  continue,  but 
it  would  make  no  new  loans ;  all  the  cash  paid  in  would  be 
held  in  reserve  for  the  great  emergency  that  had  arisen.  If  it 
had  adopted  the  two  months'  limit,  the  receipts  during  the  two 
days'  ran  would  exceed  $  5,000 ;  it  would  thus  be  prepared  for 
a  third  day,  and  probably  for  a  fourth,  as  the  amount  of  its 
own  notes  brought  in  each  day  would  rapidly  diminish  after 
three  days'  run.  The  bank  would  weather  the  storm.  But  if 
a  year  were  the  limit  it  had  adopted,  the  receipts  during  the 
first  two  days  would  be  only  $  916,  —  not  enough  to  carry  it 
through  the  third  day.  The  bank  must  stop  payment.  We 
see  an  obvious  reason,  then,  why  the  banks  feel  obliged  to  cur- 
tail their  issues  or  discounts  during  the  existence  of  a  panic, 
though  .by  so  doing  they  increase  the  distress  of  the  commu- 
nity. The  bolder  policy  sometimes  adopted,  of  increasing 
rather  than  diminishing  the  discounts  at  such  a  crisis,  in  order 
to  lessen  the  distress,  and  thereby  stop  the  panic,  resembles  the 
plan  of  crowding  all  sail  on  a  ship  in  a  storm,  in  the  hope 
thereby  of  keeping  off  a  lee-shore,  though  the  increased  strain 
thus  put  upon  the  vessel  may  leave  her  a  dismasted  hulk  on 
the  waters. 


348  BANKS  AND  BANK  CURRENCY. 

In  order  still  further  to  provide  for  its  own  safety,  a  bank 
ought  not  to  make  very  large  loans  to  individuals,  but  should 
have  the  whole  amount  of  its  disposable  funds  divided  into 
loans  of  moderate  size  to  a  considerable  number  of  persons, 
and  so  distributed  that  the  payments  or  receipts  may  be  equal- 
ized throughout  the  year.  Otherwise,  it  is  obvious  that  the 
failure  of  one  large  debtor  might  seriously  cripple  the  resources 
and  shake  the  credit  of  the  institution ;  or  a  run  might  be 
made  upon  it  at  a  period  when  very  few  notes  were  becoming 
due,  so  that  the  receipts  would  not  be  adequate  to  make  good 
the  drain  of  specie.  Simple  as  these  rules  may  appear,  it  is 
upon  the  strict  observance  of  them,  almost  as  much  as  upon 
the  caution  exercised  in  making  discounts  only  to  solvent  and 
responsible  traders,  that  the  security  of  the  bank  in  times  of 
emergency,  or  during  a  commercial  crisis,  will  be  found  to  de- 
pend. On  occasions  of  this  sort,  private  banks  in  England, 
and  even  the  Bank  of  England  itself,  have  been  obliged  to 
scrape  together  as  many  sixpences  as  could  be  found,  in  order 
to  gain  time  by  the  delay  inseparable  from  payment  in  such 
diminutive  coin,  until  a  part  of  the  notes  in  its  possession  had 
fallen  due. 

The  proper  function  of  a  bank  is  to  supply  funds  for  use 
only  as  Circulating  Capital,  the  process  of  production  being 
comparatively  a  short  one,  and  the  value  of  the  completed  prod- 
uct soon  serving  to  replace  the  advances  which  were  neces- 
sary for  wages,  raw  material,  &c.,  while  the  work  was  going 
on.  Thus  it  can  lend  to  a  farmer  in  the  spring  enough  to  buy 
seed-corn  and  to  pay  the  wages  of  his  laborers,  and  the  pro- 
ceeds of  his  crop  at  harvest-time  will  serve  to  repay  the  loan. 
It  can  lend  a  retail-dealer  enough  to  purchase  an  additional 
stock  of  goods,  if  there  is  a  reasonable  prospect  that  the  goods 
will  be  sold,  and  the  money  be  received  for  them,  in  season  to 
meet  the  payment  of  the  note  which  has  been  discounted. 
But  the  bank  cannot  safely  aid  agricultural,  commercial,  or 
manufacturing  enterprise,  by  supplying  funds  for  the  construc- 
tion of  ships  and  machinery,  for  the  digging  of  mines  or  ca- 
nals, for  the  bringing  of  waste  lands  into  cultivation,  or  for  any 
long-winded  speculation ;  in  short,  it  cannot  supply  funds  to 
be  employed  as  Fixed  Capital.  The  values  invested  in  any 
of  these  forms  can  be  but  slowly  replaced,  or  only  after  consid- 


BANKS  AND  BANK  CURRENCY.  349 

erable  intervals  of  time ;  the  ship  or  the  machine  which  will 
last  twenty  years  before  it  is  worn  out,  can  pay  for  itself  only 
out  of  the  accumulated  profits  of  nearly  twenty  years.  The 
builder,  indeed,  may  safely  obtain  a  bank  loan  to  enable  him 
to  finish  his  work,  if  it  is  his  intention  to  sell  the  ship  or  the 
machine  as  soon  as  it  is  completed.  In  such  case,  he  needs 
the  funds  for  use  only  as  Circulating  Capital ;  it  is  the  purchas- 
er, or  the  person  who  intends  to  employ  the  ship  or  machine, 
who  really  needs  the  use  of  funds  as  Fixed  Capital.  Money 
lent  for  such  purposes  can  be  repaid,  when  due,  only  by  other 
notes,  which  have  a  further  term  to  run,  and  are  negotiated 
with  the  deduction  of  discount.  When  these  fall  due,  they 
are  met  by  a  third  set  payable  at  a  still  later  date,  and  dis- 
counted in  like  manner.  The  operation  is  only  an  expedient 
for  borrowing  of  the  bank  in  perpetuity,  or  for  an  indefinite 
series  of  years. 

Land-banks,  as  they  are  properly  termed,  have  been  insti- 
tuted at  various  times  in  England,  France,  and  even  in  some 
of  the  States  of  this  Union,  on  the  principle  of  lending  capital 
upon  the  security  of  real  estate,  in  order  to  make  improve- 
ments upon  the  property.  In  such  cases,  the  security,  indeed, 
is  unexceptionable ;  but  if  the  bank  currency  thus  issued  is 
returned  to  the  institution  to  be  redeemed  in  specie,  there  will 
be  only  mortgages  to  be  offered  for  it,  and  the  bank  will  be 
obliged  to  refuse  payment.  Consequently,  the  history  of  such 
banks  has  been  uniformly  disastrous.  As  a  general  rule,  the 
currency  will  not  absorb  bank  issues,  or  prevent  them  from  be- 
ing soon  returned  for  redemption  in  specie,  if  those  issues  have 
not  furnished  a  means  for  the  immediate  creation  of  fresh  val- 
ues, the  proper  circulation  of  which  requires  an  additional 
amount  of  money.  If  bank-bills  amounting  to  one  million  of 
dollars,  for  instance,  are  lent  to  supply  the  manufacturers  with 
Circulating  Capital,  additional  manufactured  goods  will  be 
brought  into  market,  in  the  course  of  a  few  months,  to  the 
value,  probably,  of  $  1,200,000,  allowing  20  per  cent  for  profit ; 
and  the  numerous  exchanges  occasioned  by  this  quantity  of 
merchandise  will  require  additional  currency,  not  amounting, 
it  is  true,  to  one  million  of  dollars,  the  original  amount  of  the 
loan,  but  still  sufficing  to  keep  back  a  considerable  portion  of 
the  bills  from  being  presented  for  redemption  at  the  bank 
30 


350  BANKS  AND  BANK  CURRENCY. 

counter.  On  the  other  hand,  if  the  same  amount  of  bills 
should  be  lent  to  furnish  the  manufacturers  with  Fixed  Capi- 
tal, the  additional  goods  brought  to  market  in  the  course  of 
the  next  year  might  not  exceed  $  150,000,  and  but  a  small 
portion  of  the  bills  would  therefore  be  absorbed  into  the  cur- 
rency. 

If  the  paper  issues  of  the  banks  at  any  time  exceed  the  de- 
mands of  circulation,  there  follows  a  perpetual  reflux  of  the 
bank-bills,  which  will  soon  drain  the  specie  reserves,  and  can 
be  checked  only  by  a  limitation  of  the  issues.  It  is  not  neces- 
sary that  the  bills  should  be  actually  presented  at  the  counter 
with  a  demand  for  their  redemption  in  coin.  They  may  also 
be  returned  by  the  customers  of  the  banks,  who  make  deposits 
with  them,  or  return  them  in  payment  for  their  notes  which 
have  been  discounted  and  have  fallen  due.  For  illustration, 
we  may  go  back  to  the  case  of  the  supposed  bank,  with 
$  100,000  of  capital,  $  25,000  of  deposits,  and  $  50,000  of  cir- 
culation. We  may  suppose  the  daily  receipts  at  such  an 
institution  to  amount  to  $  6,000,  one  half  of  this  sum  being 
lodged  on  deposit,  and  the  remainder  being  received  in  pay- 
ment of  the  advances  which  it  has  made,  or  the  notes  which 
it  has  discounted.  If  its  circulation  be  excessive,  the  state  of 
the  money-market  not  requiring  so  large  an  amount  of  its  biUs, 
the  greater  part  of  this  daily  receipt,  say  $  5,000,  may  be  in  its 
own  bills,  and  only  $  1,000  in  specie  and  in  the  bills  of  other 
banks.  It  will  then  have  only  $  1,000  to  meet  the  demands 
upon  it  the  next  day,  and  cannot  safely  make  any  additional 
loan ;  for  a  further  amount  of  its  own  bills  has  meanwhile 
been  paid  into  other  banks,  either  on  deposit  or  in  the  dis- 
charge of  loans,  and  in  its  settlement  with  these  banks,  these 
bills  must  be  redeemed,  either  by  the  payment  of  specie,  or  by 
the  return  of  bills  which  they  have  issued.  If,  on  the  other 
hand,  the  circulation  be  not  already  glutted  with  its  own 
issues,  five  sixths  of  the  daily  receipts  may  be  in  specie  or  the 
bills  of  other  banks,  and  only  one  sixth  in  its  own  paper ;  then, 
a  small  sum  being  reserved  for  exchange  of  bills  with  other 
banks,  the  institution  may  not  only  lend  over  $  4,000  out  of 
the  former  day's  receipt,  but  may  safely  make  an  additional 
loan,  say  $  2,000,  in  its  own  notes. 

It  is  only  in  a  period  of  excitement,  during  a  commercial 


BANKS  AND  BANK  CURRENCY.  351 

crisis,  or  an  alarm  for  the  solvency  of  one  bank  or  of  all  the 
banks,  that  its  notes  are  directly  brought  to  its  counter  for  re- 
demption in  coin.  In  ordinary  times,  the  real  limit  upon  the 
circulation  of  any  one  bank  is  found  in  the  daily  settlement  of 
its  accounts  with  other  banks.  In  the  Clearing-Houses  re- 
cently established  by  the  banks  both  in  New  York  and  Bos- 
ton, every  bank  each  day  presents  all  the  bills  of  the  other 
banks  which  it  has  collected  in  the  day's  transactions,  and 
offsets  with  them  its  own  bills  which  have  been  paid  into  those 
banks  ;  only  the  balance,  which  is  comparatively  a  small  sum, 
is  settled  by  the  transfer  of  specie.  Any  redundancy  of  its 
own  issues  is  sure  to  be  followed  by  the  presentation  at  the 
Clearing- House  of  a  larger  amount  of  its  own  bills  than  it  has 
bills  of  other  banks  wherewith  to  redeem  them,  and  the  conse- 
quent necessity  of  paying  the  difference  in  gold  or  silver  coin. 
Checks  drawn  upon  it  against  deposits  must  be  met  in  the 
same  way.  When  a  bank  discounts  the  note  of  an  individual, 
it  does  not  necessarily  pay  out  its  own  notes.  The  borrower 
may  only  desire  the  amount  to  be  placed  to  his  credit  on  de- 
posit. But  the  next  day,  perhaps,  he  has  to  redeem  or  pay  off 
another  note,  discounted  some  months  before  at  another  bank. 
He  pays  this  last  note  by  a  check  on  the  bank  from  which  he 
has  just  obtained  a  discount ;  and  this  banjc  must  account  for 
the  amount  of  the  check  in  its  account  current  with  the  other 
bank,  or  at  the  Clearing- House,  —  must  perhaps  pay  specie  for 
it.  Hence  we  perceive  the  necessity  to  which  the  banks  are 
subjected,  in  times  of  alarm  and  of  the  depression  of  credit,  of 
contracting  their  loans  and  discounts  in  order  to  diminish  the 
amount  of  their  bills  in  circulation.  It  is  not  an  arbitrary  re- 
striction ;  if  they  did  not  diminish  their  loans,  their  bills  would 
be  returned  to  them  so  rapidly  as  to  exhaust  their  specie  re- 
serves. 

Through  these  necessary  dealings  of  the  banks  with  each 
other,  they  become  the  guardians  of  each  other's  solvency,  and 
are  connected  together  by  the  closest  ties  of  mutual  depend- 
ence and  guaranty.  The  question  which  was  formerly  much 
debated  in  this  country,  whether  the  banking  business  of  the 
community  would  be  more  safely  transacted  by  one  great  na- 
tional bank,  resembling  the  Bank  of  England  or  the  Bank  of 
France,  or  by  numerous  small  banks  of  comparatively  private 


352  BANKS  AND  BANK  CURRENCY. 

character  and  limited  resources,  as  in  the  present  American 
system,  is  one  of  no  substantive  importance.  As  our  small 
banks  necessarily  deal  with  each  other,  by  receiving  each  oth- 
er's bills  and  settling  their  mutual  accounts  every  day,  they 
are  virtually  bound  together  into  one  institution ;  if  the  issues 
of  any  one  of  their  number  become  excessive,  the  others  are 
the  first  to  perceive  it,  and  are  the  first  losers  by  its  insolvency. 
This  remark  applies  to  them,  however,  only  in  their  single 
function,  as  banks  of  circulation;  their  other  two  functions,  of 
receiving  deposits  and  making  discounts,  may  be,  and  often 
are,  exercised  by  private  merchants  and  capitalists,  just  as  well 
as  by  the  banks  themselves.  And  these  two  functions  consti- 
tute far  the  larger  part  of  the  banking  business.  In  those 
States  of  our  Union  where,  as  in  South  Carolina  and  Mis- 
souri, there  is  but  one  State  bank,  which  monopolizes  the  issue 
of  bank-bills,  there  are  numerous  private  bankers,  as  they  are 
termed,  who  perform  the  greater  part  of  the  banking  and  ex- 
change business.  These  bankers  are  under  very  few  legal 
restrictions ;  their  business  is  just  as  open  to  the  community 
as  any  other  branch  of  commerce.  The  office  of  issuing  bank- 
bills,  which  are  to  become  a  part  of  the  currency  of  the  coun- 
try, is  certainly  a  more  delicate  and  important  one ;  but  it  is 
not  easy  to  see  that  it  would  be  more  safely  performed  by  one 
institution,  than  by  many.  If  the  transactions  of  one  great 
bank  are  more  publicly  known  and  closely  scrutinized,  and  if 
it  can  be  managed  by  a  few  persons  of  high  reputation  for 
probity,  wealth,  and  intelligence,  so  the  consequences  of  its 
failure  would  be  more  general  and  more  disastrous.  It  would 
not  be  watched  by  any  rival  institution  deeply  interested  in 
an  early  detection  of  its  insolvency.  Massachusetts  has  169 
banks,  with  an  aggregate  capital  of  over  58  millions,  and  an 
aggregate  circulation  of  less  than  23  millions.  If  all  this  busi- 
ness were  concentrated  in  the  hands  of  one  institution,  even 
the  rumor  that  it  was  in  danger  would  create  a  panic  that 
would  paralyze  the  business  of  the  whole  State,  and  its  actual 
failure  would  occasion  almost  universal  bankruptcy.  But 
under  the  present  system,  the  unsoundness  of  one  bank  is 
quickly  detected,  and  the  rotten  member  is  easily  lopped  off 
without  shaking  public  confidence,  or  doing  more  than  slight 
injury  to  very  few  individuals.  The  average  circulation  of  a 


BANKS  AND  BANK  CURRENCY.  353 

Massachusetts  bank  is  but  little  over  $  135,000,  and  that  of 
the  largest  banks  does  not  equal  half  a  million.  There  are 
many  private  merchants  whose  liabilities  greatly  exceed  this 
amount,  and  whose  failure  would  be  a  more  serious  shock  to 
public  credit.  And  the  cases  of  insolvency  are  proportionally 
more  numerous  among  the  merchants  than  among  the  banks ; 
of  the  latter,  there  have  not  been  more  than  half  a  dozen  fail- 
ures during  the  last  fifteen  years. 

Nothing  can  be  more  erroneous  than  the  common  opinion 
that  the  banks  are  able  to  increase  their  loans,  and  augment 
their  circulation,  at  pleasure,  or  according  to  their  own  ideas 
of  what  is  safe  and  expedient.  There  are  no  other  funds  from 
which  loans  can  be  made  but  (1.)  the  capital,  (2.)  the  aver- 
age amount  of  the  deposits,  and  (3.)  the  excess  of  the  circula- 
tion over  the  specie  reserve.  The  first  of  these  is  a  fixed 
quantity,  determined  by  the  charter  and  the  nature  of  the  case. 
The  amount  of  the  second  depends  upon  the  number  of  the 
customers  of  the  bank,  and  upon  the  nature  and  extent  of  their 
business  ;  the  deposits  are  made  up  by  those  who  need  to  have 
money  at  hand,  or  within  call,  as  it  were,  but  have  no  imme- 
diate occasion  to  use  it,  and  though  their  deposits  are  continu- 
ally being  withdrawn  and  replaced,  or  transferred  from  one 
person's  credit  to  another's,  their  average  amount  is  nearly  a 
fixed  quantity,  and,  after  a  little  experience,  can  be  easily  de- 
termined. The  third  fund,  though  generally  supposed  to  be 
variable,  is  in  truth  as  much  a  fixed  quantity  as  either  of  the 
others.  We  have  seen  that  a  reflux  of  the  bank  issues  is 
always  steadily  going  on,  not  through  their  presentation  for 
specie,  but  through  the  receipts  in  deposit  and  in  payment  of 
the  loans  and  discounts  which  have  come  to  maturity.  The 
bank  can  do  nothing  to  lessen  or  retard  this  reflux,  except  by 
diminishing  the  issue  of  the  bills.  If  it  should  suddenly  and 
incautiously  enlarge  its  issues  to-day,  there  would  be  an  equiv- 
alent augmentation  of  the  reflux  to-morrow ;  for  as  the  com- 
munity was  previously  supplied  with  currency  enough  for  its 
usual  exchanges,  the  additional  amount  of  money  thus  thrown 
into  the  market  must  come  into  the  hands  of  persons  who 
would  have  no  immediate  occasion  to  use  it,  but  would  lodge 
it  on  deposit  in  the  banks,  and  it  would  thus  be  immediately 
returned  to  the  source  whence  it  came. 
30* 


354  BANKS  AND  BANK  CURRENCY. 

Experience  as  well  as  theory  confirms  this  statement.  The 
doctrine  which  "  denies  to  banks  any  power  of  increasing  their 
circulation  except  as  a  consequence  of,  and  in  proportion  to, 
an  increase  of  the  business  to  be  done,"  is  supported,  says  Mr. 
J.  S.  Mill,  "  by  the  unanimous  assurances  of  all  the  country 
bankers  who  have  been  examined  before  successive  Parliamen- 
tary committees  on  the  subject.  They  all  bear  testimony 
that,  in  the  words  of  Mr.  Fullarton,  '  the  amount  of  their  issues 
is  exclusively  regulated  by  the  extent  of  local  dealings  and  ex- 
penditure in  their  respective  districts,  fluctuating  with  the  fluc- 
tuations of  production  and  price ;  and  that  they  neither  can 
increase  their  issues  beyond  the  limits  which  the  range  of  such 
dealings  and  expenditure  prescribes,  without  the  certainty  of 
having  their  notes  immediately  returned  to  them,  nor  dimin- 
ish them,  but  at  an  almost  equal  certainty  of  the  vacancy  being 
filled  up  from  some  other  source.' "  Thus  Mr.  Anderson,  man- 
ager of  the  Glasgow  Union  Banking  Company,  when  asked 
by  a  Parliamentary  committee,  if  the  extraordinary  advances 
made  by  the  banks  in  a  season  of  pressure  did  not  increase  the 
circulation  of  the  country  generally,  answered,  "  Those  notes 
which  we  pay  out,  do  not  remain  out ;  they  must  be  paid  back, 
either  to  us  or  to  some  other  bank,  in  the  shape  of  deposits, 
till  they  are  to  be  used,  and  they  do  not  increase  the  perma- 
nent circulation  of  the  country  unless  for  a  day  or  two,  scarcely 
even  for  a  day."  As  a  bank  cannot  issue  its  own  bills  to  any 
great  extent  without  making  additional  loans  and  discounts,  it 
cannot  take  advantage  of  the  fact  that  the  bills  must  remain 
out  at  least  a  day  or  two,  before  they  find  their  way  back ;  for 
if  they  were  returned  even  on  the  third  or  fourth  day,  the  bank 
would  have  nothing  wherewith  to  redeem  them  except  the 
notes  which  it  had  just  discounted,  and  which  have  still  from 
two  to  six  months  to  run. 

Accidental  circumstances,  indeed,  sometimes  enable  a  bank 
to  pay  out  a  considerable  amount  in  its  own  bills,  taking  in 
return,  not  notes  or  drafts  which  will  mature  some  months 
hence,  but  securities  that  are  immediately  convertible  ;  a  bank, 
for  instance,  is  sometimes  requested  to  furnish  small  bills,  of 
the  denomination  of  $  10  and  under,  in  exchange  for  a  single 
$  1,000  note  of  another  bank.  These  bills  of  a  low  denomina- 
tion, being  needed  to  effect  small  payments,  pass  almost  imme- 


BANKS  AND  BANK  CURRENCY.  355 

diately  into  the  hands  of  retail  dealers,  who  are  consequently 
enabled  to  collect  and  deposit  an  equivalent  amount,  either  in 
these  very  bills  or  in  others  of  the  same  tenor.  These  dealers 
may  deposit  in  several  different  banks,  and  the  result  will  be, 
that  a  portion  of  the  bills  will  be  immediately  returned  to  the 
bank  which  issued  them,  while  the  remaining  portion  will  drive 
out  of  circulation,  or  force  back  upon  their  issuers,  an  equiva- 
lent sum  in  the  bills  of  other  banks.  The  operation  will  in- 
crease to  some  extent  the  circulation  of  one  bank  at  the 
expense  of  the  others ;  it  will  not  augment  the  general  circula- 
tion of  the  country. 

The  doctrine  which  I  have  endeavored  to  establish,  may  be 
summed  up  in  the  two  following  propositions. 

1.  The  currency  of  any  commercial  nation,  whether  it  con- 
sists exclusively  of  specie,  or  of  a  mixture  of  specie  with  bank- 
bills  redeemable  in  specie   on  demand,  is  a  fixed  quantity, 
determined  by  the  extent  of  the  trade  and  the  population,  and 
by  the  perfection  of  the  financial  arrangements  of  commerce, 
as  compared  with  the  trade,  population,  and  financial  arrange- 
ments of  all  other  commercial  nations ;  the  necessary  equaliza- 
tion of  the  prices  of  all  commodities  in  different  countries, 
through  the  operations  of  international  trade,  is  at  once  the 
result  and  the  proof  of  this  equal  distribution  of  the  total  cur- 
rency of  the  commercial  world  among  all  commercial  nations, 
in  exact  proportion  to  the  wants  and  circumstances  of  each. 
In  the  same  manner,  and  under  the  operation   of  the  same 
laws,  prices  are  equalized  through  the  various  cities  and  towns 
of  any  one  nation,  and  each  city  and  town  is  consequently 
supplied  with  its  due  proportional  share  of  the  total  currency 
of  that  country.     This  distribution  of  money  is  a  self-adjusting 
process,  not  requiring  any  interference  of  legislation,  or  any 
efforts  of  individuals  or  associations  specially  directed  to  the 
purpose.     Laissez  faire. 

2.  In  any  mixed  currency  consisting  of  specie  and  convert- 
ible bank-bills,  the  amount  of  bank-bills  of  any  given  denomi- 
nation which  remains  in  circulation  is  determined  exclusively 
by  the  convenience,  the  feelings  and  preferences  at  the  time, 
of  the  people  among  whom  they  circulate,  wholly  irrespective 
of  the  regulations  and  the  efforts  of  the  institutions  which  issue 
these  bills,  —  provided  only  that  they  issue  them  freely,  or  do 


356  BANKS  AND  BANK  CURRENCY. 

not  arbitrarily  keep  the  supply  below  the  amount  which  the 
community  is  willing  and  desirous  to  receive.  The  banks  may 
create  a  deficiency,  but  they  cannot  create  an  excess,  in  the 
circulation  of  such  bills.  In  the  numerous  payments  which 
are  daily  made  at  the  banks,  either  in  deposit  or  in  liquidation 
of  notes,  that  element  of  the  currency,  be  it  specie  or  bills, 
which  is  least  in  demand,  least  adapted  to  the  present  wishes 
and  convenience  of  the  people,  will  predominate,  and  will  thus 
be  quickly  eliminated  from  the  active  circulation,  till  the  ratio 
of  the  two  branches  of  the  currency  is  reduced  to  that  point 
which  the  popular  will  requires.  As  the  daily  payments  into 
the  banks  must,  on  an  average,  just  equal  the  daily  payments 
out  of  them,  no  effort  or  contrivance  of  the  bank  managers  can 
avert  this  result.  They  may  pay  out,  they  usually  do  pay  out, 
nothing  but  bills,  and  therefore,  as  a  general  rule,  only  bills 
are  paid  in ;  and  thus  the  proportion  of  bills  to  specie  continu- 
ing in  circulation  remains  unaltered.  But  if  a  panic  respecting 
the  solvency  of  the  banks  should  be  created,  besides  the  usual 
payments  in  deposit  and  in  liquidation  of  notes,  bills  will  be 
presented  at  the  counter  to  be  cashed,  or  redeemed  in  specie  ; 
and  thus  the  proportion  of  coin  in  active  circulation  is  rapidly 
augmented.  After  the  panic  has  subsided,  finding  that  so 
much  coin  is  inconvenient,  on  account  of  its  weight  and  bulk, 
and  the  trouble  of  counting  it,  specie  will  be  freely  paid  in  on 
deposit ;  and  then  the  bank  payments  in  bills  will  quickly  re- 
store the  usual  amount  of  paper  to  the  currency. 

The  conclusion  of  the  whole  matter  may  be  thus  stated :  — 
that  the  total  amount  of  the  currency  is  determined  by  the  ex- 
igencies of  international  trade,  or  by  the  equalization  of  the 
prices  of  commodities  throughout  the  commercial  world ;  and 
the  proportion  of  bank-bills  to  specie  in  a  mixed  currency  is 
determined  by  the  convenience  and  the  wishes  of  the  commu- 
nity at  large. 

Mr.  Tooke,  the  able  advocate  in  England  of  what  is  called 
"  the  banking  principle,"  in  opposition  to  "  the  currency  prin- 
ciple," states  a  portion  of  his  conclusions  in  the  following 
manner :  — 

"  That  it  is  not  in  the  power  of  banks  of  issue,  including  the 
Bank  of  England,  to  make  any  direct  addition  to  the  amount 
of  notes  circulating  in  their  respective  districts,  however  dis- 


BANKS  AND  BANK  CURRENCY.  357 

posed  they  may  be  to  do  so.  In  the  competition  of  banks  of 
issue  to  get  out  their  notes,  there  may  be  an  extension  of  the 
circulation  of  some  one  or  more  of  them  in  a  large  district,  but 
it  can  only  be  by  displacing  the  notes  of  rival  banks. 

"  That  neither  is  it  in  the  power  of  banks  of  issue  directly  to 
diminish  the  total  amount  of  the  circulation ;  particular  banks 
may  withhold  loans  and  discounts,  and  may  refuse  any  longer 
to  issue  their  own  notes ;  but  their  notes  so  withdrawn  will  be 
replaced  by  the  notes  of  other  banks,  or  by  other  expedients 
calculated  to  answer  the  same  purpose. 

"  That  neither  the  country  banks  nor  the  Bank  of  England 
have  it  in  their  power  to  make  additional  issues  of  their  paper 
come  in  aid  of  their  banking  resources.  All  advances  by  way 
of  loan  or  discount,  when  the  circulation  is  already  full,  can 
only  be  made  by  banks  of  issue  in  the  same  way  as  by  non- 
issuing  banks,  out  of  their  own  capital  or  that  of  their  depos- 
itors." * 

In  explanation  of  the  only  exception  to  the  truth  of  these 
principles,  I  borrow  again  from  Mr.  Tooke's  able  pamphlet 
"  The  only  plausible  argument,"  he  says,  "  that  I  have  met 
with,  for  a  distinction  between  issuing  and  non-issuing  banks, 
in  their  tendency  to  issue  money  in  excess,  (meaning,  if  trans- 
lated into  correct  language,  '  to  make  advances  of  capital  in 
excess,')  is,  that  in  the  competition,  either  of  new  banks  of 
issue  to  get  a  portion  of  the  existing  circulation,  or  of  estab- 
lished banks  to  get  an  increased  share  at  the  expense  of  neigh- 
boring banks,  they  are  induced,  with  a  view  of  getting  out 
their  notes,  to  make  advances  to  an  undue  extent,  and  upon 
insufficient  securities.  This,  I  think,  may  be  admitted  as  true 
to  some  extent;  and  to  this  extent  there  may  be  sufficient 
ground  for  making  whatever  regulations  should  be  thought 
advisable  to  guard  against  malversation  of  banks  generally, 
more  stringent  as  against  banks  of  issue."  f  But  the  object  of 
the  regulations  adopted  for  this  purpose  would  be,  not  to  di- 
minish the  amount  of  bank-bills  in  circulation,  but  to  confine 
the  issue  of  them  to  solvent  and  well-regulated  institutions 
conducted  upon  sound  banking  principles. 

The  greatest  abuse  of  the  banking  system  here  in  America 

*  Tooke  on  the  Currency  Principle,  p.  122.  t  Ibid.,  p.  95. 


358  BANKS  AND  BANK  CURRENCY. 

consists  in  the  unrestricted  competition  of  the  banks  with  each 
other  in  the  attempts  made  by  each  one  to  force  its  own  bills 
into  circulation.  To  understand  the  artifices  adopted  for  this 
end,  we  must  revert  to  the  distinction  already  explained  be- 
tween the  peculiar  office  performed  by  bills  of  a  high,  and  by 
those  of  a  low,  denomination.  The  smaller  notes,  not  exceed- 
ing the  value  of  $  10  each,  circulate  chiefly  in  the  transactions 
of  the  consumers  with  the  retail  dealers  and  with  each  other, 
in  the  payment  of  wages,  and  in  the  thousand  petty  transac- 
tions which  make  up  the  whole  business  of  life  for  those  who 
are  not  engaged  in  large  commercial  operations.  These  small 
bills  often  pass  from  hand  to  hand,  effecting  a  multitude  of 
small  payments,  and  remaining  out  of  the  bank  a  long  time, 
before  they  are  at  last  collected  by.  some  small  dealer,  and  re- 
turned to  a  bank  on  deposit,  often  in  a  dirty  and  worn  condi- 
tion. The  larger  notes,  on  the  other  hand,  embracing  nearly 
all  that  exceed  $10  each,  circulate  only  among  dealers,  the 
largest  of  all  only  among  wholesale  dealers,  and  generally  do 
not  effect  more  than  one  payment  before  they  are  returned  to 
the  bank ;  often  they  are  only  carried  from  one  bank  to  an- 
other, and  then  they  are  exchanged  in  the  first  settlement  at 
the  Clearing- House,  and  do  not  properly  pass  into  circulation 
at  all.  It  is  only  through  the  small-note  circulation,  then,  that 
a  bank  can  keep  out  any  considerable  amount  of  its  bills. 
The  extent  of  this  circulation  would  properly  depend  upon  the 
comparative  population  of  the  district  to  which  the  bank  be- 
longs, and  not  upon  the  amount  of  business  transacted  in  that 
district,  except  it  be  business  of  a  particular  kind.  Thus, 
manufacturers  and  other  persons  employing  a  large  number  of 
operatives  have  occasion  to  pay  out  weekly  a  considerable  sum 
in  wages,  and,  needing  small  bills  for  this  purpose,  can  usually 
obtain  a  discount  at  the  bank  on  very  favorable  terms,  or  when 
all  other  applicants  would  be  refused.  The  officers  of  rail- 
roads, and  others  who  have  occasion  to  receive  a  great  number 
of  small  payments,  can  distribute  many  small  bills  in  "  making 
change  "  for  the  larger  bills  which  are  tendered  to  them  ;  and 
these  also  can  obtain  discounts  on  easy  terms,  sometimes  on 
doubtful  security.  Some  banks  will  even  make  loans  to  ap- 
plicants from  distant  places,  on  express  condition  that  the  bills 
received  shall  be  carried  away,  and  not  be  paid  into  any  bank 


BANKS  AND  BANK  CURRENCY.  359 

at  the  first  instance,  but  be  distributed  in  small  sums  as  occa- 
sion may  arise.  As  only  applicants  of  doubtful  credit  or  in 
straitened  circumstances  would  consent  to  buy  the  favors  of 
the  banks  on  such  terms,  it  is  obvious  that  such  practices  can 
be  carried  on  only  at  great  hazard. 

The  difference  between  the  large-note  and  small-note  cur- 
rency may  be  further  illustrated  by  the  difference  between 
metropolitan  and  country  banks,  in  respect  to  the  amount  of 
then-  bills  which  they  are  able  to  keep  in  circulation.  Here  in 
Massachusetts,  the  Boston  banks,  with  an  aggregate  capital  of 
nearly  thirty-three  millions,  have  a  circulation  of  only  seven 
millions ;  the  banks  out  of  Boston,  with  a  capital  of  only 
twenty-six  millions,  have  a  circulation  of  15j  millions.  More 
precisely,  the  Boston  banks  have  one  dollar  in  circulation  to 
every  $  4.58  of  capital ;  for  the  country  banks,  the  proportion 
is  one  to  every  $  1.66.  The  reason  for  this  great  difference  is, 
that  the  Boston  banks  supply  a  small-note  currency  for  a  pop- 
ulation of  only  150,000 ;  the  country  banks  for  a  population 
numbering  at  least  835,000.  The  contrast  would  be  still  more 
striking,  if  the  returns  enabled  us  to  distinguish  large  notes 
from  small  ones ;  it  would  probably  be  found,  that  the  larger 
part  of  the  country-bank  currency  consists  of  bills  not  exceed- 
ing on  an  average  $  10  in  value,  while  most  of  the  Boston  cir- 
culation is  in  bills  of  $  20  and  upwards.  So  small  an  amount 
of  active  currency  for  so  great  a  commerce  as  that  of  the  me- 
tropolis of  New  England  is  enough  to  prove  the  correctness  of 
Mr.  Tooke's  statement,  that  "  the  great  bulk  of  the  wholesale 
trade  of  the  country  is  carried  on  and  adjusted  by  settlements 
or  sets-off  of  debts  and  credits,  the  written  evidences  of  which 
are  in  bills  of  exchange,  (including  in  that  term  all  promissory 
notes  payable  to  order  after  date,)  while  current  payments  for 
what  are  called  cash  sales  are  mostly  made  by  checks ;  the  ul- 
timate balance  only,  arising  out  of  the  vast  mass  of  such  trans- 
actions, requiring  liquidation  in  a  comparatively  small  amount 
of  bank-notes. 

The  banks  in  England  cannot  issue  bills  of  a  lower  denomi- 
nation than  five  pounds  sterling,  or  nearly  $  25  ;  the  Bank  of 
France  issues  none  below  5QO  francs,  or  nearly  $  100.  In  both 
those  countries,  therefore,  the  currency  which  is  in  the  hands 
of  the  common  people,  and  by  which  all  small  payments  are 


360  BANKS  AND  BANK  CURRENCY. 

effected,  consists  exclusively  of  gold  and  silver ;  bank-notes  are 
confined  to  the  operations  of  trade,  chiefly  of  the  wholesale 
trade,  and  to  the  expenditures  of  the  government  and  of  per- 
sons of  considerable  fortune. 

It  may  well  be  doubted  whether  a  similar  policy  ought  not 
to  be  generally  adopted  in  this  country ;  whether,  at  any  rate, 
the  circulation  of  bank-bills  of  a  lower  denomination  than  $  10 
ought  not  to  be  prohibited  by  law.  It  is  evident  from  what 
precedes,  that  I  regard  a  well-regulated  bank  currency,  convert- 
ible into  specie  on  demand,  as  a  cheap  and  convenient  substi- 
tute in  part  for  the  use  of  the  precious  metals,  and  as  a  neces- 
sary instrument  of  commerce ;  and  that  the  evils  commonly 
attributed  to  it,  of  being  liable  to  issue  in  excess,  and  thereby 
of  causing  violent  expansions  and  contractions  of  the  total  cur- 
rency, and  ruinous  fluctuations  in  prices,  are  imaginary,  no 
such  issue  in  excess  being  possible  so  long  as  the  banks  con- 
tinue to  redeem  their  bills  in  coin.  But  a  small-note  currency 
cannot  be  well  regulated ;  the  profits  resulting  from  its  issue 
being  considerable,  there  is  a  keen  competition  among  the 
banks  to  obtain  as  large  a  share  as  possible  of  the  business, 
and  this  competition  leads  to  injurious  and  hazardous  prac- 
tices, whereby  the  solvency  of  these  institutions  and  the  stabil- 
ity of  the  whole  system  are  perilled.  Such  a  currency  is  safe 
only  when  it  is  backed  by  sufficient  specie  reserves ;  but  as 
there  is  a  loss  of  interest  on  such  reserves,  there  is  a  great 
temptation  to  reduce  them  to  narrower  limits  than  prudence 
would  warrant.  The  circulation  of  some  of  the  country  banks 
in  Massachusetts  is  to  the  specie  in  their  vaults  as  more  than 
forty  to  one.  It  is  true,  that  a  portion  of  the  specie  which  is 
the  guaranty  of  their  circulation  is  lodged  in  the  Boston  banks ; 
but  the  aggregate  bank  circulation  of  the  State  is  to  the  aggre- 
gate specie  reserve  as  more  than  five  to  one,  a  proportion 
which  is  hardly  consistent  with  the  safety  of  the  whole,  and 
which,  as  this  reserve  is  very  unequally  distributed,  is  certainly 
pregnant  with  danger  to  many.  Each  bank,  looking  only  to 
its  own  safety,  and  not  to  the  safety  of  the  whole  system,  re- 
lies upon  the  aid  of  the  other  banks,  in  case  of  specie  being 
suddenly  demanded  of  it  to  any  considerable  extent ;  it  issues, 
for  instance,  $  100,000  in  bills,  when  it  has  less  than  $  3,000 
in  coin,  because  it  knows  that,  if  an  emergency  should  arise, 


BANKS  AND  BANK  CURRENCY.  361 

it  could  easily  obtain  $  30,000,  either  in  coin  or  bills,  from  the 
neighboring  or  associate  banks.  So  it  could,  if  the  emergency 
were  a  limited  one,  that  perilled  only  its  own  safety.  But  if 
there  were  a  general  run  upon  all  the  banks,  such  as  might 
easily  be  produced  in  a  time  of  pressure  by  the  reported  insol- 
vency of  two  or  three  of  them,  each  one  would  be  obliged  to 
take  care  of  itself,  and  could  render  no  aid  to  its  correspond- 
ents or  neighbors.  Though  the  run,  then,  might  not  be  ex- 
tensive enough  to  appear  serious  in  the  outset,  it  might  still 
suffice  to  break  half  of  the  country  banks  in  the  State ;  and 
the  alarm  being  thus  quickened  into  a  panic,  the  demand  for 
coin  would  so  rapidly  increase,  that  a  general  suspension  of 
specie  payments  would  inevitably  ensue.  It  was  thus  that  all 
the  banks  were  compelled  to  suspend  in  May,  1837.  At  that 
time,  most  of  the  banks  in  New  England,  and  many  of  those 
in  the  other  States,  were  in  what  would  be  usually  considered 
as  a  perfectly  sound  condition  ;  they  had  suffered  no  extraordi- 
nary losses,  their  capitals  were  unimpaired,  and  their  specie 
reserves  bore  the  ordinary  ratio  to  their  circulation.  But  it 
was  a  time  of  great  financial  distress,  —  the  reaction  from  a 
speculative  fever  that  had  reached  its  crisis.  While  the  pub- 
lic mind  was  in  this  excited  state,  the  failure  of  a  few  really 
insolvent  banks  in  the  Middle  States  gave  a  direction  to  the 
panic,  and  an  immediate  and  total  suspension  became  inevita- 
ble. As  fast  as  the  news  spread,  the  banks,  conscious  of  their 
inability  to  meet  a  storm,  closed  their  doors  before  the  run 
upon  them  could  begin.  Though  perfectly  provided  for  ordi- 
nary fair  weather,  they  were  unable  to  withstand  the  first  gust 
of  a  tempest.  But  the  act  was  only  a  suspension ;  it  was  not 
insolvency.  After  the  alarm  had  had  time  to  subside,  the 
banks  reopened  their  doors,  and,  here  in  New  England  at  least, 
not  one  in  fifty  of  them  failed  to  redeem  every  penny  of  its 
obligations. 

In  reference  to  bank  currency,  what  the  public  need  to  be 
guarded  against  is  not  the  occasional  mismanagement  or  fraud- 
ulent conduct  of  a  few  institutions ;  against  these,  the  watch- 
fulness of  the  other  banks,  and  the  general  severity  of  the  laws 
against  fraud,  are  a  sufficient  protection.  The  great  evil  is  the 
general  insecurity  of  the  whole  system  in  a  time  of  pressure ; 
and  this  evil  cannot  be  obviated  so  long  as  there  is  a  bounty 
31 


362  BANKS  AND  BANK  CURRENCY. 

upon  the  diminution  of  the  specie  reserve,  and  upon  the  exten- 
sion of  the  small-note  currency.  Our  present  system  throws 
the  bulk  of  the  circulation  into  the  hands  of  the  community  in 
general,  —  that  is,  of  persons  who  have  no  concern  with  the 
banks  in  then-  ordinary  transactions,  who  have  little  to  do  with 
commerce,  who  know  nothing  of  the  circumstances  on  which 
the  safety  of  the  currency  depends,  who  are  peculiarly  liable  to 
panic,  and  are  apt  to  adopt,  when  alarmed,  only  such  meas- 
ures as  will  increase  the  danger.  There  is  a  saving  of  expense, 
as  we  have  shown,  in  the  substitution  of  bank  paper  for  gold 
and  silver  coin ;  but  this  is  not  a  saving  of  expense  for  the  body 
of  the  people.  It  accrues  exclusively  to  the  benefit  of  the 
banks,  and  of  the  customers  of  the  banks,  —  that  is,  of  the 
trading  community  and  the  capitalists.  It  is  a  saving  made 
through  the  people,  but  not  for  the  people,  who  do  not  profit 
by  it,  except  in  some  small  measure,  by  an  increase  of  conven- 
ience in  the  use  of  a  currency  which  is  not  burdensome  by  its 
weight  and  bulk.  Common  justice  requires,  then,  that  the 
people  should  be  protected  against  the  slightest  risk  in  the  use 
of  this  currency.  It  should  be  made  to  them  as  secure  as  the 
coin  which  its  circulation  deprives  them  of;  and  this  is  obvi- 
ously impossible,  so  long  as  the  occurrence  of  a  financial  pres- 
sure may  at  any  time  drive  all  the  banks  in  the  country,  how- 
ever well  managed,  to  a  suspension  of  specie  payments.  Banks 
are  now  instituted  where  the  exigencies  of  commerce  do  not 
call  for  them,  —  in  small  towns,  where  there  is  little  trade  and 
little  surplus  capital,  —  in  order  only  to  profit  by  the  circula- 
tion of  small  bills,  which  can  be  put  forth  in  large  amounts  in 
such  neighborhoods.  They  are  country  banks  only  in  name 
and  ostensible  location,  their  capital  being  generally  furnished 
by  merchants  and  bankers  from  a  distance,  and  often  lent  out 
again  in  large  sums  to  the  stockholders  themselves.  Cut  off 
the  small-note  currency,  and  such  institutions,  which  are  estab- 
lished on  false  pretences,  even  if  they  are  not  fraudulent  in  in- 
tention, would  cease  to  exist ;  and  the  banking  business  proper 
would  be  conducted  only  in  cities  and  large  towns,  by  that 
portion  of  the  community  who  are  directly  interested  in  it,  and 
who  alone  would  be  affected  by  its  fluctuations.  Banks  would 
no  longer  be  the  objects  of  popular  jealousy  and  dislike.  They 
would  be  regarded  as  exclusively  commercial  institutions, 


BANKS  AND  BANK  CURRENCY.  363 

whose  operations  no  more  concern  the  public  at  large  than 
those  of  the  stock  exchange. 

The  great  obstacle  in  this  country  to  the  prohibition  of  a 
small-note  currency  is  the  independent  legislation  of  the  differ- 
ent States.  If  Massachusetts,  for  instance,  should  forbid  the 
issue  of  bills  for  a  less  sum  than  $  10  by  its  own  banks,  its  cur- 
rency would  immediately  be  flooded  by  small  notes  from  the 
other  New  England  States,  the  banks  in  which,  being  relieved 
from  competition,  would  be  able  to  send  out  a  much  larger 
amount  of  such  notes  than  before.  The  Federal  government 
having  no  power  under  the  Constitution  to  interfere  in  such  a 
case,  the  circulation  of  small  notes  could  be  effectually  prohib- 
ited only  by  concert  among  the  individual  States ;  and  this 
would  require  greater  unanimity  of  action  by  the  different  leg- 
islatures than  can  reasonably  be  expected. 

All  the  expedients  which  have  been  devised  for  the  security 
of  a  small-note  circulation  are  insufficient,  because  they  are 
not  directed  against  the* quarter  from  which  there  is  any  real 
apprehension  of  danger;  they  are  fortifications  of  a  point 
which  is  not  seriously  menaced.  They  are  expedients,  not  to 
lessen  the  amount  of  the  small-note  currency,  nor  to  provide 
against  a  general  suspension  of  specie  payments  by  the  banks, 
and  a  consequent  depreciation  of  the  whole  currency,  but  to 
obviate  the  risk  of  insolvency  by  one  or  more  banks,  and  to 
provide  for  the  ultimate  redemption  of  their  bills  even  when 
they  become  insolvent.  This  last  purpose  would  be  suffi- 
ciently answered  by  merely  giving  a  priority  of  payment  to 
the  bill-holders,  as  in  all  ordinary  cases,  the  assets  of  an  insol- 
vent bank  are  large  enough  to  redeem  its  circulation,  though 
not  to  pay  off  its  deposits  and  other  liabilities ;  and  extraordi- 
nary cases  are  provided  for  by  the  penalties  enacted  against 
fraud. 

The  Safety  Fund  system,  as  it  was  called,  was  a  kind  of 
mutual  insurance  by  the  banks  of  each  others'  circulation  ;  all 
were  compelled  to  contribute  a  small  proportion  of  their  capi- 
tal to  form  a  general  fund,  out  of  which  the  bills  of  an  insol- 
vent bank  were  to  be  redeemed.  This  was  a  tax  imposed 
upon  the  well-regulated  institutions  to  make  up  for  the  frauds 
or  malpractices  of  their  rivals ;  it  offered  no  security  against 
the  occurrence  of  a  general  panic  and  a  general  suspension. 


364  BANKS  AND  BANK  CURRENCY. 

Another  expedient,  now  adopted  in  many  States,  is  to  author- 
ize any  association  for  banking  purposes  to  issue  notes  of  any 
denomination,  from  one  dollar  upwards,  on  condition  of  mak- 
ing a  deposit  with  the  State  authorities  of  public  stocks,  mort- 
gages, and  other  good  securities,  to  an  amount,  at  their  present 
market  value,  equal  to  that  of  the  notes  which  they  propose  to 
circulate.  This  deposit  is  a  guaranty  for  the  ultimate  security 
of  their  issues,  which  sort  of  guaranty,  as  we  have  seen,  is  not 
at  all  necessary.  What  is  needed  is  security  for  the  immediate 
convertibility  of  bank  currency,  without  which,  in  a  general 
panic,  it  may  undergo  great  depreciation,  though  there  is  posi- 
tive assurance  that  the  notes  will  ultimately  be  redeemed  in 
full.  To  allow  mortgages  of  real  estate  to  form  a  portion  of 
this  State  deposit  is  especially  unwise ;  for  mortgages,  as  we 
have  seen,  because  the  sums  for  which  they  are  granted  cannot 
be  realized  till  after  long  delay,  do  not  form  a  safe  basis  on 
which  the  banks  could  make  ordinary  discounts.  As  to  the 
State  stocks  and  other  public  securities,  Mr.  Gouge  properly 
observes,  "  The  mischief  is,  that  they  are  least  available  when 
they  are  most  wanted ;  the  very  causes  which  might  prevent 
the  banks  from  redeeming  their  issues  promptly,  would  cause 
a  fall  in  the  value  of  the  stocks  and  mortgages  on  the  ultimate 
security  of  which  their  notes  have  been  issued."  In  a  com- 
mercial crisis,  or  after  a  general  suspension  of  specie  pay- 
ments, many  such  stocks  and  securities  might  become  entirely 
unsalable. 

The  Sub-Treasury  system,  as  it  is  called,  adopted  by  Con- 
gress in  1846,  as  a  means  of  divorcing  the  fiscal  operations  of 
the  Federal  government  from  the  banks,  and  of  contributing  to 
the  establishment  of  a  currency  consisting  exclusively  of  gold 
and  silver,  is  ludicrously  insufficient  for  this  last  purpose,  to 
effect  which  it  begins  at  the  wrong  end.  It  is  the  rude  and 
operose  plan  of  requiring  all  payments  to  or  by  the  United 
States  to  be  made  entirely  in  specie.  The  balance  which  re- 
mains at  any  time  in  the  hands  of  the  government  must  con- 
sist exclusively  of  coin,  and  be  deposited  in  vaults  and  safes, 
under  the  strict  injunction  that  it  must  not  be  put  to  any  use, 
or  applied  to  any  beneficial  purpose  whatsoever.  In  what 
manner  this  sum,  varying  during  the  last  few  years  from  20 
to  25  millions  of  dollars,  thus  lying  dead  and  unproductive, 


BANKS  AND  BANK  CURRENCY.  365 

guarded  by  thick  walls  and  iron  grates,  can  promote  or  expe- 
dite the  general  adoption  of  a  specie  currency,  it  is  difficult  to 
imagine.  The  mere  necessity  of  keeping  up  this  idle  deposit, 
which  is  liable  to  sudden  and  great  fluctuations  in  amount, 
under  the  varying  ratio  of  the  government  receipts  to  the  gov- 
ernment expenditures,  would  of  itself  be  a  formidable  obstacle 
to  the  safe  establishment  of  a  metallic  currency ;  the  money- 
market  would  be  subject  at  any  time  to  a  dangerous  expansion 
or  contraction  from  the  involuntary  movements  of  the  national 
treasury.  Besides,  the  fiscal  transactions  of  the  government 
are  necessarily  on  an  extensive  scale;  it  deals  in  very  large 
sums,  such  as  most  easily  and  naturally  assume  the  shape  of 
paper  evidences  of  debt,  transfers  of  book  credits,  and  other 
modes  of  settling  accounts  and  effecting  current  payments 
without  the  necessity  of  moving,  or  even  counting,  large 
amounts  of  specie.  It  is  in  the  numerous  petty  transactions 
of  ordinary  life  among  common  people,  that  the  weight  and 
bulk  of  gold  and  silver  coin  cease  to  be  an  encumbrance,  and 
that  the  want  of  the  perfect  security  which  it  affords  is  seri- 
ously felt.  A  metallic  currency  would  be  a  boon  to  the  lower 
classes,  but  is  an  intolerable  burden  to  the  State.  According 
to  the  admission  of  its  most  zealous  advocates,  the  Sub-Treas- 
ury has  occasioned  only  a  very  limited  circulation  of  gold  and 
silver,  —  "  chiefly  from  the  public  depositories  to  the  banks,  and 
back  again  from  the  banks  to  the  public  depositories." 

In  spite  of  numerous  and  jealous  restrictions  in  the  law, 
large  sums  will  be  received  and  paid  out  by  the  same  office, 
on  the  same  day,  in  some  more  easy  and  compendious  form 
than  by  a  double  transfer  of  coin,  or  by  rolling  kegs  of  specie 
out  of  the  door,  and  then  rolling  them  in  again  ;  and  the  busi- 
ness of  exchange  between  distant  portions  of  the  country  will 
be  conducted  without  the  actual  transportation  of  the  precious 
metals,  except  to  a  very  limited  extent.  The  law  requires,  for 
instance,  that  all  sums  should  be  received  and  paid  in  gold  or 
silver  ;  but  the  law  cannot  prevent  A,  a  creditor  of  the  United 
States,  who  has  just  received  a  draft  for  $  10,000  on  the  Sub- 
Treasurer  in  New  York,  from  selling  that  draft  to  B,  a  mer- 
chant who  has  occasion  to  pay  the  government  that  sum  on 
account  of  the  duties  on  a  cargo  of  goods,  and  who  finds  it 
more  convenient  to  deliver  the  draft  than  to  employ  a  horse 
31* 


366  BANKS  AND  BANK  CURRENCY. 

and  dray  to  carry  the  specie.  In  respect  to  such  transactions, 
the  Sub-Treasury  is  only  a  convenient  deposit  bank  for  the 
creditors  of  the  United  States,  and  the  government  drafts  upon 
it  are  unexceptionable  evidences  of  debt,  or  certificates  of  de- 
posit, which,  being  indorsed  over  from  one  person  to  another, 
may  effect  many  settlements  of  accounts  between  individuals, 
before  they  are  finally  paid  into  the  treasury  as  ordinary  re- 
ceipts of  custom-duties.  Nay,  the  government  itself,  for  its 
own  convenience  in  transporting  funds  from  one  part  of  the 
country  to  another,  has  been  obliged,  in  order  to  avoid  the 
delay,  risk,  and  expense  of  the  actual  conveyance  of  specie,  to 
drive  a  traffic  in  these  drafts,  thus  performing  a  service  for 
others  while  receiving  a  favor  for  itself.  "  For  example,"  says 
Mr.  Gouge,  "  a  person  in  Washington  city  wishes  to  pay  a 
sum  of  money  in  New  York.  He  deposits  the  gold  or  silver 
in  the  treasury  office  at  Washington,  and  receives  an  order  in 
return  for  an  equal  amount  of  gold  and  silver  on  the  assistant 
treasurer  at  New  York.  In  this  way,  the  government  is  saved 
the  expense  of  bringing  gold  and  silver  from  New  York  to 
Washington  city,  and  private  individuals  the  expense  of  carry- 
ing gold  and  silver  from  Washington  city  to  New  York."  In 
fact,  the  practice  was  soon  instituted  "  of  assigning  transfer 
drafts  to  bankers,  brokers,  and  others,  and  allowing  them  the 
use  of  the  money  for  such  time  as,  it  may  be  supposed,  will 
compensate  them  for  the  expense  of  transporting  specie  from 

one  depository  to  another At  the  commencement  of 

the  system,  some  seventy  or  eighty  days  were  allowed  for  car- 
rying money  from  New  York  to  New  Orleans ;  but  the  time 
was  gradually  prolonged,  so  that  from  100  to  135  days  were 
consumed  in  transporting  the  public  money  from  the  deposi- 
tory at  New  York  to  the  depository  at  Washington."  The 
transfers  thus  made  within  a  period  of  twenty-eight  months 
exceeded  fifteen  millions  of  dollars,  and  the  money  was  out  of 
the  treasury  depositories  on  an  average  about  sixty  days.  In 
respect  to  this  function  of  transfer,  the  Sub-Treasury  is  only  a 
great  exchange  bank,  though  it  performs  gratuitously  the  ser- 
vices for  which  other  exchange  brokers  charge  a  premium.  In- 
stead of  divorcing  the  treasury  from  the  banks,  therefore,  the 
institution  is  itself  a  bank,  —  a  very  ill-constituted  one,  how- 
ever, performing  in  a  bungling  manner  two  banking  functions 


BANKS  AND  BANK  CURRENCY.  367 

in  spite  of  itself,  but  reaping  no  profit  from  them,  and  only  de- 
ranging the  transactions  of  other  banks  by  its  abnormal  inter- 
ference and  competition. 

It  really  performs  to  a  certain  extent  a  third  banking 
function,  by  supplying  a  considerable  amount  of  paper  cur- 
rency ;  when  the  government  draws  upon  it,  there  is  nothing 
to  prevent  the  person  in  whose  favor  the  draft  is  made  from 
indorsing  it  in  blank,  as  it  is  termed,  (that  is,  without  naming 
the  indorsee,)  and  then  it  is  a  bank  bill,  which,  without  further 
indorsement,  may  be  transferred  successively  to  many  differ- 
ent hands,  and  effect  as  many  payments,  before  it  is  finally 
presented  for  payment,  or  paid  in,  at  the  particular  Sub-Treas- 
ury on  which  it  is  drawn.  True,  the  law  requires  the  Secre- 
tary of  the  Treasury  "  to  enforce  the  speedy  presentation  of  all 
government  drafts  for  payment  at  the  place  where  payable, 
and  to  prescribe  the  time,  according  to  the  different  distances 
of  the  depositories  from  the  seat  of  government,  within  which 
all  drafts  upon  them  respectively  shall  be  presented  for  pay- 
ment." But  this  provision  is  wholly  indefinite,  and  cannot  be 
made  otherwise  than  indefinite,  as  more  or  less  time  may  be 
necessary  under  different  circumstances,  and  within  a  very 
short  time  many  transfers  of  the  draft  would  be  possible. 

These  facts  illustrate  the  general  principle,  that  large  pecu- 
niary transactions  cannot  be  effected  on  the  rude  and  burden- 
some plan  of  an  actual  transfer  of  specie  at  every  payment. 
The  various  commercial  expedients,  of  deposits,  transfers  of 
credit,  sets-off,  bills  of  exchange,  and  other  forms  of  paper  cur- 
rency, will  intrude  themselves,  however  they  may  be  forbidden 
by  law,  in  order  to  save  the  parties  concerned  the  intolerable 
annoyance  of  counting  out,  or  weighing  out,  large  amounts  in 
coin,  of  carrying  tons  of  specie  to  and  fro  over  great  distances, 
and  of  employing  a  horse  and  dray  every  time  that  it  is  neces- 
sary to  pay  or  receive  a  few  thousands.  We  might  as  well 
seek  to  do  away  with  gas-lights,  steamboats,  and  railroads,  as 
attempt  to  prohibit  these  labor-saving  and  time-saving  contri- 
vances. What  is  wanted  is  not  prohibition,  but  regulation,  of 
a  paper  currency.  Take  away  the  small  notes,  and  the  large 
ones  will  regulate  themselves,  because  they  will  circulate  only 
among  merchants,  bankers,  and  capitalists,  who  understand 
the  principles  on  which  they  are  issued,  and  will  most  easily 


368  BANKS  AND  BANK  CURRENCY. 

detect  any  mismanagement  in  relation  to  them,  by  which  they 
would  be  themselves  the  first  and  greatest  sufferers. 

I  have  already  borrowed  from  Adam  Smith  the  ingenious 
illustration,  that  "  the  gold  and  silver  money  which  circulates 
in  any  country  may  very  properly  be  compared  to  a  highway, 
which,  while  it  circulates  and  carries  to  market  all  the  grass 
and  corn  of  the  country,  produces  itself  not  a  single  pile  of 
either."  He  carries  out  the  comparison  still  further.  "  The 
judicious  operations  of  banking,"  he  remarks,  "  by  providing, 
if  I  may  be  allowed  so  violent  a  metaphor,  a  sort  of  wagon- 
way  through  the  air,  enable  the  country  to  convert,  as  it  were, 
a  great  part  of  its  highways  into  good  pastures  and  corn-fields, 
and  thereby  to  increase  very  considerably  the  annual  produce 
of  its  land  and  labor.  The  commerce  and  industry  of  the 
country,  however,  it  must  be  acknowledged,  though  they  may 
be  somewhat  augmented,  cannot  be  altogether  so  secure,  when 
they  are  thus,  as  it  were,  suspended  upon  the  Dsedalian  wings 
of  paper  money,  as  when  they  travel  about  upon  the  solid 
ground  of  gold  and  silver.  Over  and  above  the  accidents  to 
which  they  are  exposed  from  the  unskilfulness  of  the  conduc- 
tors of  this  paper  money,  they  are  liable  to  several  others,  from 
which  no  prudence  or  skill  of  those  conductors  can  guard 
them." 

Among  such  accidents  is  the  possible  occurrence  of  a  panic, 
or  the  reaction  from  a  speculative  fever,  which  may  cause  a 
drain  of  specie  sufficient  to  exhaust  the  reserves  of  the  banks. 
The  mere  presence  of  a  reserved  fund  of  coin  and  bullion  in 
the  country  is  no  safeguard  against  such  a  calamity,  if  it  be 
locked  up  as  in  the  vaults  of  the  Sub- Treasury,  whence  it  will 
not  be  forthcoming  to  meet  a  drain,  whether  that  drain  be 
caused  by  a  demand  for  export  growing  out  of  previous  exces- 
sive importation,  or  by  a  general  propensity  to  hoard  coin 
stimulated  by  alarm  for  the  safety  of  the  banks.  The  fund  so 
locked  up  might  as  well,  for  any  practical  purpose,  be  on  the 
other  side  of  the  Atlantic.*  It  is  said,  indeed,  that  the  neces- 

*  "Any  addition  of  specie,"  says  Mr.  Webster,  "  in  order  to  be  useful,  must  either 
go  into  the  circulation  as  a  part  of  that  circulation,  or  else  it  must  go  into  the  banks 
to  enable  them  the  better  to  sustain  and  redeem  their  paper.  But  this  bill  [to  es- 
tablish the  Sub- Treasury]  is  calculated  to  promote  neither  of  those  ends,  but  exactly 
the  reverse.  It  withdraws  specie  from  the  circulation  and  from  the  banks,  and  piles 


BANKS  AND  BANK  CURRENCY.  369 

sity  of  keeping  up  this  fund  occasions  frequent  calls  upon  the 
banks  for  coin,  and  to  meet  these  calls  they  are  obliged  to  for- 
tify themselves  with  larger  specie  reserves  than  they  would 
otherwise  deem  necessary.  So  they  are ;  but  the  additional 
funds  are  thus  provided  to  meet  the  demands  of  the  treasury, 
and  not  to  be  a  safeguard  of  the  bank  issues ;  the  additional 
danger  exhausts,  and  probably  a  little  more  than  exhausts,  the 
additional  protection. 

The  only  use  to  which  this  idle  treasury  fund  could  be  put, 
with  a  view  to  the  improvement  of  the  currency,  would  be  to 
make  it  the  basis  for  an  issue  by  the  government  of  an  equiva- 
lent sum  in  small  notes,  designed  for  general  circulation.  As 
such  notes  would  rest  upon  the  faith  of  the  Federal  govern- 
ment, would  be  represented,  dollar  for  dollar,  by  coin  actually 
in  the  treasury,  for  which,  at  any  time,  they  could  be  ex- 
changed, and  would  have  a  general  instead  of  a  local  charac- 
ter and  currency,  they  would  be  preferred  to  the  small  bills 
issued  by  the  banks,  which  they  would  soon  displace  and  drive 
out  of  circulation.  Being  issued,  moreover,  only  for  small 
sums,  never  exceeding  five,  or,  at  the  utmost,  ten  dollars,  they 
would  only  form  small  currency  for  the  bulk  of  the  people, 
and  would  be  used  but  to  a  very  small  extent  in  wholesale 
trade  or  large  financial  operations,  so  that  they  would  not  en- 
able government  to  interfere  with  the  ordinary  course  of  traffic 
and  exchange.  As  they  would  be  issued  only  in  payment  of 
government  debt  or  in  ordinary  expenditure,  the  treasury 
would  still  have  the  use  of  all  its  funds,  while  preserving  intact 
in  its  vaults  an  amount  of  specie  equal  to  the  whole  amount 
of  its  notes  in  circulation.  Such  a  currency,  if  limited  to  an 
amount  somewhat  below  that  of  the  probable  circulation  of 
small  bills,  would  have  all  the  convenience  of  paper  and  all  the 
security  of  coin ;  no  panic  could  shake  public  confidence  in  it, 
or  subject  it  to  a  depreciation.  There  would,  indeed,  be  no 

it  up  in  useless  heaps  in  the  treasury.  It  weakens  the  general  circulation,  by  mak- 
ing the  portion  of  specie  which  is  part  of  it  so  much  the  less  ;  it  weakens  the  banks, 
by  reducing  the  amount  of  coin  which  supports  their  paper.  The  general  evil  im- 
puted to  our  currency,  for  some  years  past,  is,  that  paper  has  formed  too  great  a 
portion  of  it.  The  operation  of  this  measure  must  be  to  increase  that  very  evil.  I 
have  admitted  the  evil,  and  have  concurred  in  measures  to  remedy  it.  I  have  fa- 
vored the  withdrawing  of  small  bills  from  circulation,  to  the  end  that  specie  might 
take  their  place."  —  Webster's  Works,  Vol.  IV.  p.  457. 


370  BANKS  AND  BANK  CURRENCY. 

economy  in  its  adoption,  as  a  corresponding  amount  of  specie 
would  lie  idle  in  the  treasury.  But  it  lies  there  idle  now, 
while  the  injurious  and  unsafe  portion  of  the  bank  currency 
circulates  freely.  The  only  object  in  issuing  this  paper 
would  be  to  displace  the  insecure  small-note  circulation  of 
the  banks,  and  to  provide  a  perfectly  safe  and  convenient  cur- 
rency for  the  community  at  large,  who  are  not  engaged  in 
trade  or  banking. 

But  as  political  considerations  would  probably  be  an  insu- 
perable obstacle  to  the  adoption  of  this  plan,  or  of  any  other 
scheme  for  doing  away  with  the  small-note  circulation  of  the 
banks  altogether,  the  question  remains,  if  there  are  not  some 
means  of  lessening  the  quantity,  and  adding  to  the  security,  of 
that  circulation.  A  judicious  application  of  the  taxing  power 
might  have  this  effect.  Here  in  Massachusetts,  and  in  several 
other  States,  a  heavy  tax  is  laid  on  bank  capital  as  such,  and 
individuals  are  also  taxed  for  the  bank  stock  which  they  may 
own,  as  well  as  for  their  other  property.  Thus,  capital  in- 
vested in  banks  is  taxed  twice  over,  —  an  injurious  and  unrea- 
sonable distinction,  as  its  effect,  so  far  as  it  goes,  is  to  raise  the 
rate  of  interest,  increase  the  difficulty  of  borrowing  money, 
hinder  capital  from  passing  into  the  hands  of  those  who  will 
use  it  to  the  best  advantage,  and  prevent  the  industrious  and 
enterprising  classes  from  obtaining  the  means  of  applying  their 
industry  and  enterprise  in  such  a  way  as  to  obtain  the  largest 
possible  results.  I  have  already  shown  at  some  length,  (vide 
ante,  pp.  8  - 12,)  that  wealth  is  not  locked  up  when  placed  in 
banks,  but  rather  that  it  is  thereby  released  from  a  state  of  in- 
activity, and  "  made  to  do  its  full  part  in  supplying  the  lungs 
of  industry,  keeping  it  alive  and  active,  and  making  all  the 
parts  of  the  body  politic  and  social  contribute  to  the  suste- 
nance and  growth  of  the  whole."  A  widow,  for  instance,  who 
could  make  no  use  of  her  little  property  if  it  remained  in  her 
own  hands,  invests  in  a  bank,  which  lends  it  to  industrious 
tradesmen  and  mechanics,  and  they  obtain  additional  tools  and 
goods  with  it,  and  thus  labor  to  better  purpose,  sharing  their 
increased  gains  with  the  owner  of  the  capital,  who  thus  ob- 
tains income  from  it  without  diminishing  the  principal.  "  The 
declaration  so  often  quoted,"  says  Mr.  Webster,  "  that '  all  who 
trade  on  borrowed  capital  ought  to  break,'  is  the  most  aristo- 


BANKS  AND  BANK  CURRENCY.  371 

cratic  sentiment  ever  uttered  in  this  country.  It  is  a  sentiment 
which,  if  carried  out  by  political  arrangement,  would  condemn 
the  great  majority  of  mankind  to  the  perpetual  condition  of 
mere  day-laborers.  When  we  abolish  credit,  we  divorce  labor 
from  capital ;  and  when  we  divorce  labor  from  capital,  capital 
is  hoarded  and  labor  starves." 

Instead  of  imposing  a  double  tax  upon  the  banks,  so  far  as 
they  are  institutions  of  deposit  and  discount,  they  ought  rather 
to  be  released  from  taxation  altogether.  A  bounty  rather  than 
a  penalty  should  be  enacted  for  taking  capital  out  of  the  hands 
of  those  who  either  cannot  use  it  or  will  not  use  it,  and  con- 
fiding it  to  those  who  will  unite  it  with  industry,  and  thus 
make  it  active  in  the  great  business  of  production.  The 
double  tax  has  been  imposed  from  an  indistinct  perception  of 
the  fact,  that  the  banks  in  their  third  function,  as  issuers  of 
bank  currency,  and  especially  of  the  small-note  circulation,  ob- 
tain profits  which  do  not  properly  belong  to  them,  and  subject 
the  community  thereby  to  very  considerable  hazard  of  loss  for 
the  sake  of  their  own  advantage.  If  paper  currency  is  to  be 
substituted  for  metallic  currency,  the  profits  of  the  substitution 
ought  to  accrue  for  the  benefit  of  those  who  make  it,  —  of 
those  who  are  willing  to  give  up  coin,  and  accept  paper  with 
all  its  attendant  risks.  The  act  of  substitution  is  the  act  of 
the  community  at  large ;  to  be  the  agents  in  this  act  is  a 
usurped  function  of  the  banks,  in  no  wise  connected  with  their 
other  and  proper  offices.  It  belongs  to  the  state,  and  ought 
to  be  exercised  for  the  benefit  of  the  tax-payers,  —  that  is,  of 
the  persons  who,  by  giving  up  coin  and  accepting  paper,  make 
a  saving  of  the  precious  metals,  and  ought  to  profit  by  that 
saving.  Especially  is  this  reasoning  applicable  to  the  case  of 
the  small-note  circulation.  In  respect  to  bills  of  a  higher  de- 
nomination than  $  10,  it  may  fairly  be  urged,  that  they  cir- 
culate generally  among  merchants,  bankers,  and  capitalists, 
who  therefore  ought  to  be  allowed,  through  the  banks,  to  con- 
trol the  issue  of  them,  so  far  as  it  can  be  controlled  consist 
ently  with  maintaining  their  convertibility  into  specie  on 
demand,  and  to  reap  the  benefit  of  their  circulation.  But  not 
so  with  regard  to  the  small  bills,  which  are  the  money  of  the 
bulk  of  the  people.  Here,  the  whole  risk  rests  with  the  per- 
sons who  use  the  notes  ;  and  if  any  profit  is  to  be  derived  from 


372  BANKS  AND  BANK  CURRENCY. 

that  use,  this  also  should  belong  to  them.  Otherwise,  a  seri- 
ous hazard  is  imposed  upon  them  for  the  benefit  of  others,  who 
can  show  no  good  title  to  the  gains  which  they  usurp.  "  It  is 
quite  idle,"  says  Mr.  T.  Tooke,  a  zealous  advocate  of  the 
banks,  "  it  is  quite  idle  to  say  that  the  lower  classes  have  the 
option  of  refusing  to  take  the  country  notes ;  practically,  in 
the  great  majority  of  instances,  they  have  not  and  cannot  have 
any  such  option.  But  if  there  is  any  object  more  important 
than  another,  for  which  the  government  of  every  state  has  been 
invested  with  the  privilege  of  coining  money,  it  is  that  of  pro- 
tecting the  lower  classes  of  society,  who  are  little  competent 
in  this  particular  to  protect  themselves,  from  the  risk  of  loss  in 
receiving  their  stipulated  wages  or  other  payments." 

Take  off  the  tax  of  one  per  cent  on  bank  capital,  then,  and 
impose  a  tax  of  five  or  ten  per  cent  on  the  circulation  of  all 
bills  below  the  denomination  of  $  10.  The  amount  of  small 
notes  would  thus  be  very  much  diminished,  and  as  the  state, 
through  the  tax,  would  reap  nearly  the  whole  profit  from  those 
remaining  in  circulation,  it  could  well  afford  to  guarantee  their 
immediate  convertibility  into  specie.  Such  a  measure  would 
be  even  preferable  to  the  one  adopted  in  England,  after  the 
failure  of  so  many  private  banks  of  issue  in  1825.  The  circu- 
lation of  one-pound  notes  at  that  time  was  computed  at  up- 
wards of  five  millions  sterling.  So  many  of  them  became 
valueless,  or  were  greatly  depreciated,  by  the  failure  of  the 
issuing  banks,  that  Parliament  the  following  year  entirely  sup- 
pressed this  class  of  notes.  However  it  may  be  regretted,  adds 
Mr.  Tooke,  "that  the  holders  of  private  country  bank-notes, 
being  now  of  the  denomination  of  <£  5  and  upwards,  should 
occasionally  be  exposed  to  loss  by  failure  of  the  issuers,  it  will 
hardly  be  contended  that  their  case  is  so  important  and  so 
clearly  distinct  from  the  case  of  depositors,  and  other  sufferers 
by  the  failure  of  banks,  as  to  justify,  with  the  view  of  protect- 
ing them,  an  alteration  of  the  whole  system  of  issue." 


PAPER    MONEY.  373 


CHAPTER    XXI. 

PAPER    MONEY,    AND    ITS    USE    AS    A    REVOLUTIONARY    CURRENCY. 

WE  have  still  to  speak  briefly  of  the  circulation  of  paper 
money,  properly  so  called,  or  of  bills  which  do  not  profess  to 
be  immediately  convertible  into  specie.  These  are  sometimes 
issued  by  the  state,  in  cases  of  great  emergency,  and  are  then 
usually  called  bills  of  credit.  In  this  form,  they  are  forbidden 
by  the  Constitution  of  the  United  States,  which  declares  that 
"  no  State  shall  coin  money,  emit  bills  of  credit,  or  make  any- 
thing but  gold  or  silver  coin  a  tender  in  payment  of  debts." 
Bank-notes,  also,  after  the  banks  have  suspended  specie  pay- 
ments, so  that  their  notes  are  no  longer  convertible  into  coin 
on  demand,  become  bills  of  credit,  or  paper  money.  Thus  the 
currency  of  Great  Britain  consisted  of  paper  money  from  1797, 
when  the  Bank  of  England  suspended  payment,  till  1819, 
when  it  resumed.  The  distinguishing  characteristics  of  such 
money  are,  that  it  is  inconvertible,  and  its  circulation  is  com- 
pulsory. Thus,  to  take  the  more  common  form  of  this  cur- 
rency, which  is  issued  by  the  authority  of  the  state,  when  the 
government  has  no  longer  the  means  of  meeting  its  pecuniary 
engagements,  it  begins  to  make  purchases  and  to  pay  its  debts 
by  issuing,  not  coin,  nor  bills  immediately  convertible  into 
coin,  but  its  own  promises  to  pay  at  some  future  time.  These 
"promises  to  pay"  are  made  legal  tender,  —  that  is,  creditors 
are  compelled  to  receive  them  in  satisfaction  of  their  demands. 
Their  circulation  is  compulsory,  then ;  but  the  very  fact  that 
they  are  receivable  in  payment  of  debts  gives  them  a  conven- 
tional value.  To  any  person  who  has  money  to  receive,  it 
matters  nothing  whether  the  money  possesses  intrinsic  value 
or  not,  or  whether  the  "  promise  to  pay  "  which  it  bears  upon 
its  face  is  ever  redeemed  or  not,  provided  he  is  sure  that  he 
can  make  payments  with  it,  and  cancel  his  own  obligations. 
Even  if  the  money  is  undergoing  a  rapid  depreciation,  as  he 
does  not  expect  to  retain  it  any  time  in  his  possession,  but  in- 
tends to  pay  it  away  again  the  next  day,  or  even  the  next  hour, 
32 


374  PAPER   MONEY. 

he  knows  that  it  cannot  lose  much  value  in  his  hands,  but  that 
it  will  be  worth  nearly  as  much  when  he  parts  with  it  as  when 
he  received  it.  Paper  dollars  are  as  good  as  silver  ones,  so  long 
as  they  will  cancel  debts  and  effect  purchases  equally  well. 

Paper  money  of  this  kind  was  issued  by  nearly  all  the  Amer- 
ican Colonies  before  the  period  of  their  separation  from  Eng- 
land ;  and  from  the  various  degrees  of  its  depreciation  in  dif- 
ferent parts  of  the  country  arose  the  different  value  of  the  shil- 
ling, which  is  still  with  us  a  popular  denomination  of  account, 
though  not  an  actual  coin,  and  not  recognized  in  the  legal  cur- 
rency. The  shilling  was  the  denomination  used  in  the  Colo- 
nial paper  money ;  and  when  the  shilling  had  its  par  value, 
4s.  6d.  were  equal  to  a  silver  dollar.  But  paper  shillings  became 
depreciated,  so  that,  in  New  England,  six  shillings  came  to  pass 
for  a  dollar ;  in  New  York,  eight,  and  in  Pennsylvania,  seven 
shillings  had  this  value.  The  names  of  these  "  shillings  "  and 
"  pence "  have  remained  for  nearly  a  century  after  the  disap- 
pearance of  the  reality,  and  still  create  much  confusion  in  the 
popular  mode  of  reckoning  money. 

But  the  most  remarkable  experiment  of  paper  money  here 
in  America  was  the  Continental  currency,  as  it  was  called, 
issued  by  authority  of  Congress  during  the  American  Revolu- 
tion. The  epithet  "  Continental,"  like  National  or  Federal 
now-a-days,  marked  the  distinction  between  what  was  done  by 
the  government  of  the  whole  Union,  and  the  acts  of  the  sepa- 
rate Colonies  or  States.  In  June  and  July,  1775,  to  meet  the 
expenses  of  the  war  which  was  seen  to  be  inevitable,  and  in 
fact  had  already  commenced  at  Lexington,  Congress,  having 
no  other  funds,  issued  three  millions  of  dollars  in  these  bills  of 
credit,  with  a  promise  that  they  should  be  redeemed  in  four 
annual  instalments,  to  commence  at  the  end  of  four  years. 
The  burden  of  redeeming  them  was  distributed  among  the  sev- 
eral Colonies,  in  the  ratio  of  their  supposed  number  of  inhabit- 
ants. The  bills  were  issued  in  the  purchase  of  provisions  and 
munitions  of  war,  and  in  the  payment  of  the  troops.  In  No- 
vember of  the  same  year,  the  issue  of  three  additional  millions 
became  necessary ;  the  annual  instalments  for  redeeming  this 
sum  were  to  begin  in  eight  years.  Specie,  which  had  been 
scarce  before,  had  now  almost  entirely  disappeared  from  the 
country,  and  the  "  Continental  money  "  was  considerably  de- 


PAPER    MONEY.  375 

predated.  So  rapidly  did  this  depreciation  and  the  exigencies 
of  the  war  increase,  that  in  the  course  of  the  following  year, 
1776,  fourteen  millions  more  had  to  be  issued.  After  the  issue 
of  the  first  six  millions,  no  time  was  fixed  for  the  redemption 
of  the  bills.  Of  course,  the  depreciation,  aggravated  by  large 
local  issues  of  the  several  Colonies,  soon  became  alarming,  and 
futile  attempts  were  made  by  Congress  and  the  Colonial  legis- 
latures to  check  it.  The  New  England  Colonies  tried  to  reg- 
ulate by  law  the  prices  to  be  paid  in  this  currency  for  labor 
and  commodities ;  and  Congress  resolved,  that  the  bills  ought 
to  pass  for  the  same  value  as  Spanish  dollars  in  all  dealings 
and  payments,  and  that  all  persons  who  should  refuse  to  take 
them  at  this  valuation,  ought  to  be  considered  as  "  enemies  to 
the  United  States,"  and  to  be  punished  with  forfeitures  and 
other  penalties.  But  the  necessary  laws  of  exchange  and  trade 
were  not  to  be  counteracted  by  legislative  enactments  or  the 
patriotism  of  the  people.  Additional  issues  continued  to  be 
made,  and  the  paper  continued  to  depreciate,  until,  in  1780, 
the  amount  in  circulation  was  about  200  millions,  and  500. 
even  1,000,  dollars  in  this  currency  were  offered  for  one  in  sil- 
ver.* Then  finally  the  bills  ceased  to  circulate,  and  became 
entirely  worthless,  as  dealers  would  not  accept  them  on  any 
terms. 

No  attempt  was  subsequently  made  to  cancel  the  original 
obligation  by  redeeming  the  bills,  either  in  full  or  in  part ;  for 
as  the  depreciation  had  been  gradual,  while  the  bills  were  rap- 
idly circulating  in  the  community,  it  had  obviously  become 
impossible  to  measure  the  exact  loss  which  each  holder  of  them 
had  suffered.  To  pay  the  last  holder  in  full  would  only  have 
aggravated  the  injustice,  by  giving  him  much  more  than  was 
his  due,  and  leaving  his  predecessors  without  any  compensa- 

*  John  Adams,  in  a  letter  to  the  Count  de  Vergennes  (June  22,  1780),  gives 
some  curious  particulars  respecting  the  enormous  prices  which  were  paid  for  com- 
modities in  America  in  1779  and  1780,  in  consequence  of  this  depreciation  of  the 
currency.  "  Bohea  tea,"  he  says,  "  forty  sous  a  pound  at  L'Orient  and  Nantes,  sold 
for  forty-five  dollars.  Salt,  which  costa  very  little  in  Europe,  and  used  to  be  sold 
for  a  shilling  a  bushel,  was  forty  dollars  a  bushel,  and,  in  some  of  the  other  States, 
two  hundred  dollars  at  times.  Linens,  which  cost  two  livres  a  yard  in  France,  forty 
dollars  a  yard.  Broadcloths,  a  louis  d'or  a  yard  here,  two  hundred  dollars  a  yard. 
Ironmongery  of  all  sorts,  120  for  one.  Millinery  of  all  sorts,  at  an  advance  far  ex- 
ceeding. These  were  the  prices  at  Boston.  At  Philadelphia  and  in  all  the  other 
States,  they  were  much  higher."  —  John  Adams's  Works,  Vol.  VII.  p.  199. 


376  PAPER    MONEY. 

tion  whatever.  It  was  justly  remarked,  that  the  depreciation 
of  the  paper  money  ought  to  be  considered  as  a  tax,  inasmuch 
as  the  paper  was  first  issued  only  to  relieve  the  people  from 
the  necessity  of  paying  a  tax.  Each  person  through  whose 
hands  the  money  passed  parted  with  it  again  at  a  loss,  propor- 
tioned to  the  quantity  he  held  and  the  time  he  held  it.  As  the 
currency  circulated  among  the  whole  people,  the  rich  and  poor 
holding  it,  and  suffering  by  its  depreciation,  in  proportion  to 
the  respective  amounts  of  their  cash  purchases  and  sales,  the 
whole  loss  was  divided  among  them  very  nearly  in  just  propor- 
tion to  their  ability  and  liability  to  pay  a  tax.  The  payment 
of  the  whole  value  borne  on  the  face  of  the  bill  to  one  who  had 
received  it,  perhaps,  at  the  rate  of  a  hundred  for  one,  could 
have  been  made  only  by  a  second  tax  on  the  same  persons 
who  had  already  been  fairly  and  heavily  taxed  by  its  deprecia- 
tion. 

The  history  of  the  paper  money  issued  in  France,  in  the 
course  of  the  Revolution  which  commenced  in  1789,  is  per- 
fectly similar  to  that  of  the  corresponding  experiment  in 
America.  The  French  bills  of  credit,  however,  as  their  name 
(assignors)  indicates,  were  nominally  issued  upon  a  basis  of 
real  property.  The  national  domains,  as  they  were  termed,  or 
the  confiscated  estates  of  the  crown,  the  clergy,  and  the  emi- 
grants, were  made  over,  or  sold  in  mass,  to  the  municipalities 
or  towns  in  which  they  were  respectively  situated.  These 
municipalities,  not  having  funds  to  pay  immediately,  received 
the  property  on  long  credit,  binding  themselves  to  pay  in  in- 
stalments, as  fast  as  they  were  able  to  make  sales  of  the  estates 
without  sacrifice.  The  creditors  of  the  state  then  obtained 
their  dues  by  receiving  orders  or  assignments  (assignats*)  on 
the  municipalities  for  a  portion  of  the  debt  thus  due  to  the 
state.  The  holders  of  these  orders  might,  if  they  saw  fit, 
immediately  obtain  the  value  of  them,  by  becoming  the  pur- 
chasers of  the  estates  which  the  municipalities  had  to  sell,  and 
paying  for  them  in  assignats.  If  they  preferred  to  wait,  they 
still  had  the  value  of  the  national  domains,  and  the  obligations 
of  the  municipalities,  as  securities  for  the  ultimate  payment  of 
the  debt.  Meanwhile,  the  assignats  themselves  were  transfer- 
able property,  which  might  be  exchanged  for  commodities,  or 
assigned  in  payment  of  debts ;  and  to  aid  the  negotiation  of 


PAPER    MONEY.  377 

them,  they  were  made  transferable  without  indorsement,  and 
constituted  legal  tender ;  that  is,  they  were  converted  into  pa- 
per money,  and  as  the  issue  of  them  increased,  they  displaced 
the  sounder  portions  of  the  currency,  and  became  the  universal 
medium  of  exchange. 

As  the  expenditures  of  the  state  were  heavy,  through  the 
war  in  which  it  was  involved,  and  as  it  was  an  easy  process  to 
stamp  and  issue  assignats  in  satisfaction  of  all  demands,  the 
issue  of  this  paper  money  soon  became  excessive,  and  the  in- 
evitable consequence  followed,  its  rapid  and  great  depreciation. 
This  fall  in  value  could  not  be  checked  by  the  sale  of  the  con- 
fiscated estates,  for,  as  the  currency  depreciated,  the  prices  of 
the  national  domains,  as  well  as  of  all  other  property,  rose  in 
the  same  proportion.  The  issue  began  in  1790 ;  and  as  early 
as  1793  one  franc  in  silver  had  come  to  be  worth  six  francs  in 
assignats.  The  arbitrary  government  of  the  Jacobins,  who 
were  then  in  power,  having  put  in  forced  circulation  the  anti- 
cipated proceeds  of  the  property,  now  undertook  to  sustain  the 
value  of  its  currency  by  penal  enactments.  They  might  as 
well  have  enacted  laws  to  prevent  the  sun  from  setting  at  the 
close  of  the  day.  Six  years'  imprisonment  was  denounced 
against  any  one  who  should  exchange  any  amount  of  silver  or 
gold  for  a  greater  nominal  value  of  assignats ;  and  a  maximum 
of  price  was  established  for  bread  and  the  other  necessaries  of 
life.  The  only  consequence  was,  that  the  owners  of  grain  and 
other  commodities  refused  to  bring  them  to  market  at  all,  and 
thus  what  was  a  scarcity  became  a  famine.  The  starving  peo- 
ple then  became  furious ;  the  severities  formerly  exercised  only 
against  the  nobles,  the  clergy,  and  the  royalists  were  now 
turned  against  the  rich,  the  farmers  of  the  public  revenue,  the 
traders  who  were  accused  of  monopolizing  food  and  holding  it 
back  from  sale,  &c.,  and  these  were  sent  in  crowds  to  the  guil- 
lotine. But  all  the  terrors  of  that  period  which  was  emphati- 
cally called  "  the  Reign  of  Terror  "  were  not  enough  to  arrest  the 
depreciation.  Bread  rose  to  22  francs  (nominally  over  $  4)  a 
pound,  and  the  prices  of  other  commodities  were  in  proportion. 
The  issue  of  assignats  amounted,  in  1796,  to  the  enormous 
sum  of  45,000,000,000  of  francs.  But  the  state  receipts  from 
taxes,  loans,  the  sale  of  the  national  domains,  and  other  causes, 
had  reduced  the  amount  actually  in  circulation  to  about 
32* 


378  PAPER    MONEY. 

24,000,000,000.  These  were  exchanged,  at  the  rate  of  thirty 
for  one,  for  mandats,  another  species  of  paper  money,  the  holder 
of  which  was  entitled  to  take  any  portion  of  the  confiscated 
estates  not  yet  sold,  by  paying  in  this  new  currency  22  times 
the  rent  which  the  property  brought  in  1790.  The  mandats 
were  also  receivable  in  payment  of  government  taxes  and 
loans.  In  this  way,  the  stock  of  paper  money  in  circulation 
was  greatly  diminished ;  but  the  issue  of  mandats  still  being 
excessive,  they  finally  became  as  much  depreciated  as  the  as- 
signats  had  been  before  them,  and  by  a  spasmodic  effort,  both 
the  government  and  the  people  reverted  to  a  specie  currency. 
The  final  result  of  the  experiment  in  France,. as  in  America, 
was,  that  through  the  depreciation  of  the  currency,  the  people 
paid  a  very  heavy  tax  for  the  success  of  the  Revolution,  —  a 
tax  somewhat  irregularly  and  unequally  imposed,  but  yet 
approaching  as  near  to  equity  as  could  be  expected  from  any 
public  measure  which  had  its  birth  in  the  exigencies  and  tur- 
moil of  a  great  civil  war. 

Paper  money  was  also  issued  by  the  revolutionary  author- 
ities of  Hungary  and  Rome  in  1849 ;  but  the  speedy  restora- 
tion of  the  former  government  in  both  cases  prevented  the 
experiment  from  being  worked  out  to  an  end.  In  fact,  expe- 
rience has  proved,  what  might  have  been  demonstrated  from 
the  theory  of  the  subject,  that  this  kind  of  money  is  a  proper 
revolutionary  currency.  It  is  usually  first  issued  amid  the 
commercial  disasters,  and  the  destruction  of  public  and  private 
credit,  which  are  among  the  first  consequences  of  the  overthrow 
of  an  old  government,  and  the  outbreak  of  a  civil  war.  The 
way  is  prepared  for  the  introduction  of  it  by  a  violent  contrac- 
tion of  the  old  currency,  consequent  on  the  general  disappear- 
ance of  the  gold  and  silver  coins,  which  everybody  at  such  a 
crisis  is  disposed  to  collect  and  hoard,  or  to  send  out  of  the 
country.  This  gap  or  vacuum  in  the  circulation  manifests 
itself  by  the  extraordinary  low  prices  of  all  commodities,  the 
difficulty  of  effecting  sales  of  any  kind  of  property,  the  conse- 
quent impossibility  of  meeting  commercial  engagements,  and 
general  bankruptcy.  Some  kind  of  money  —  it  hardly  matters 
what  —  is  needed  to  fill  up  this  gap ;  and  it  turns  out,  by  a 
happy  coincidence,  that  the  issue  of  some  sort  of  conventional 
currency  is  the  only  financial  resource  of  the  revolutionary 


PAPER    MONEY.  379 

government.  At  the  trivial  expense  of  stamping  bits  of  paper 
with  a  vague  "  promise  to  pay  "  at  some  future  date,  the  insur- 
gent authorities,  otherwise  penniless,  find  their  exchequer  as 
well  supplied  for  a  time,  as  if,  to  adopt  Mr.  Ricardo's  illustra- 
tion, a  gold  mine  had  been  suddenly  discovered  within  the  pre- 
cincts of  the  public  treasury.  In  such  cases,  it  is  thought  to 
be  the  enthusiastic  patriotism  of  the  people  which,  for  a  while, 
sustains  the  credit  of  the  new  currency,  and  preserves  it  from 
any  material  depreciation,  till  a  very  considerable  amount  has 
been  issued.  But  the  truth  is,  that  the  gap  produced  in  the 
circulation,  by  the  causes  already  explained,  creates  a  pressing 
want  of  something  to  fill  it  up,  and  restore  prices  to  their  for- 
mer level.  Any  kind  of  money,  though  the  feelings  of  the 
people  were  against  rather  than  in  favor  of  the  issuers  of  it, 
would  have  this  effect,  provided  only  that  it  be  made  legal  ten- 
der, or  an  instrument  for  discharging  debts.  So  long  as  the 
new  currency  is  not  more  than  sufficient  to  fill  up  the  vacant 
space  in  the  old  one,  its  value  will  remain  nearly  at  par ;  — 
nearly,  I  say,  because  gold  and  silver  coin,  being  capable  of 
exportation,  which  paper  money  is  not,  will  always  command 
a  slight  premium.  And  the  difference  indicated  by  this  pre- 
mium will  act  still  further  in  favor  of  the  new  currency;  be- 
cause, for  reasons  already  explained,  the  depreciated  or  over- 
valued money  will  drive  out  even  what  remained  of  the  perfect 
and  sound  currency,  and  take  the  whole  circulation  to  itself. 

Suppose,  for  instance,  that  the  currency  of  the  country  in  its 
normal  condition  is  equal  to  200  millions.  If,  then,  in  the 
panic  created  by  a  revolution,  80  millions  should  be  hoarded 
or  sent  abroad,  the  insurgent  government  will  be  able  to  issue 
80  millions  in  paper  at  once,  which  will  circulate  at  a  discount 
of  not  more  than  2  or  3  per  cent.  As  every  person  will  then 
prefer  to  pay  his  debts  and  make  purchases  with  paper  rather 
than  coin,  inasmuch  as  he  will  thereby  save  2  or  3  per  cent, 
the  remaining  portion  of  the  sound  currency  will  be  gradually 
collected  and  sent  abroad,  and  the  new  government  will  be  en- 
abled to  issue  120  millions  more  in  specie,  without  doing  any 
other  injury  than  raising  the  prices  of  commodities  2  or  3  per 
cent,  —  a  difference  too  slight  to  be  noticed. 

Any  revolutionary  government,  therefore,  though  it  should 
inherit,  as  is  most  probable,  only  an  empty  treasury,  may  at 


380  PAPER   MONEY. 

once  obtain  funds  equal  in  amount  to  the  whole  circulation  of 
the  country,  by  merely  issuing  paper  money  to  this  extent 
Still  further :  this  issue,  coming  immediately  after  a  period  of 
violent  contraction  of  the  currency,  and  of  consequent  low 
prices,  inability  to  realize  property  or  collect  debts,  general 
want  of  credit,  and  widely  spread  bankruptcy,  will  have  the 
effect  to  raise  prices  again,  to  restore  credit,  to  animate  com- 
merce anew,  and  to  diffuse  through  the  whole  country  the 
glow  of  returning  prosperity.  All  this  will  operate  to  the  ad- 
vantage of  the  new  government,  and  the  revolutionary  fever 
of  the  people  will  rise  higher  than  ever.  Yet  again :  as  this 
paper  money,  now  in  universal  use,  depends  solely  upon  the 
faith  of  the  revolutionary  government,  whose  engagements,  it 
is  feared,  would  not  be  respected  by  the  former  authorities, 
should  they  be  restored  to  power,  every  person  in  the  country 
has  an  interest  in  resisting  such  a  restoration,  and  supporting 
the  cause  of  the  insurgents.  It  is  thus  that  a  heavy  national 
debt  and  a  large  depreciated  paper  currency,  such  as  exist  in 
Austria  at  the  present  day,  though  to  a  superficial  glance  they 
may  appear  as  sources  of  weakness  in  the  government,  are  in 
truth  the  pillars  of  its  strength.  Every  capitalist,  every  person 
who  has  any  property  to  lose,  under  such  circumstances,  will 
resist  a  revolution  to  the  death,  fearing  that  the  successful  in- 
surgents would  wipe  out  the  debt  with  a  sponge,  and  obtain 
room  for  a  new  batch  of  paper  money  by  repudiating  the  for- 
mer issue.  Without  its  enormous  national  debt,  it  may  be 
doubted  whether  even  the  government  of  Great  Britain  would 
have  resisted  as  successfully  as  it  did  the  political  convulsions 
of  the  memorable  year  1848.  As  it  was,  every  stockholder 
and  every  shopkeeper  in  London  armed  himself  as  a  special 
constable,  to  resist  the  ragged  army  of  proletaries  who  assem- 
bled on  Kennington  Common  in  April  of  that  year. 

Could  the  revolutionists  stop  here,  then,  in  their  issue  of 
paper  money,  all  would  be  well.  Unfortunately  they  cannot 
stop.  There  is  a  necessity  of  lavish  expenditure  in  a  revolu- 
tion, especially  if  the  exigencies  of  a  civil  or  foreign  war  are 
added  to  the  other  demands  on  the  treasury.  Having  put 
forth  paper  money  enough  to  fill  up  the  whole  circulation  of 
the  country,  and  being  intoxicated  with  the  brilliant  success  of 
this  measure,  the  needy  government  finds  itself  compelled,  not 


PAPER    MONEY.  381 

unwillingly,  to  issue  more ;  and  then,  inevitably,  marked  de- 
preciation ensues.  John  Adams  stated  the  theory  of  this  sub- 
ject with  perfect  correctness  seventy-five  years  ago,  when  his 
own  country  was  affording  a  striking  illustration  of  the  truth 
of  his  doctrine.  "  The  amount  of  ordinary  commerce,  external 
and  internal,  of  a  country,"  he  says,  "  may  be  computed  at  a 
fixed  sum.  A  certain  sum  of  money  is  necessary  to  circulate 
among  the  society  in  order  to  carry  on  their  business.  This 
precise  sum  is  discoverable  by  calculation,  and  reducible  to  cer- 
tainty. You  may  emit  paper  or  any  other  currency  for  this 
purpose,  until  you  reach  this  rule,  and  it  will  not  depreciate. 
After  you  exceed  this  rule,  it  will  depreciate  ;  and  no  power  or 
act  of  legislation  hitherto  invented  can  prevent  it.  In  the  case 
of  paper,  if  you  go  on  emitting  for  ever,  the  whole  mass  will  be 
worth  no  more  than  that  was  which  was  emitted  within  the 
rule."  * 

In  the  case  already  supposed,  of  the  ordinary  currency 
amounting  to  200  millions,  should  paper  money  be  issued  to 
the  extent  of  400  millions,  the  certain  result  will  be  a  deprecia- 
tion of  fifty  per  cent ;  that  is,  no  greater  value  will  remain  in 
the  hands  of  the  community  than  200  millions,  though  the 
government  has  nominally  paid  off  twice  as  much.  Here, 
then,  taxation  begins ;  by  issuing  400  millions  when  only  half 
as  much  was  needed,  the  government  has  really  taxed  the  com- 
munity to  the  extent  of  200  millions,  less  the  depreciation  to 
which  each  portion  of  this  sum  was  subject  at  the  date  of  its 
emission.  If,  for  instance,  40  millions  of  this  sum  were  issued 
before  the  depreciation  began,  a  second  40  millions  when  the 
depreciation  was  at  12|  per  cent,  a  third  40  millions  when  it 
was  at  25,  a  fourth  at  37|,  and  a  fifth  at  50  per  cent,  the  tax 
really  levied  upon  the  people  amounted  to  150  millions.  As 
the  depreciation  goes  on,  moreover,  the  necessity  of  issuing 
more  paper  rapidly  increases ;  and  hence  it  is,  that,  when  the 
fall  in  value  has  once  begun,  it  seems  to  continue  and  enlarge 
with  frightful  rapidity.  When  the  depreciation,  for  instance, 
is  at  50  per  cent,  the  prices  of  all  commodities  are  doubled ; 
government  must  pay  twice  as  much  in  wages  and  salaries, 
and  for  provisions  and  munitions  of  war,  and  must  therefore 

*  John  Adams's  Works,  Vol.  VII.  p.  195. 


382  PAPER    MONEY. 

pay  out  200  millions  to  do  the  work  which  100  millions  did 
before.  At  the  same  time,  its  resources  are  diminished;  all 
payments  to  it,  being  made  in  the  depreciated  currency,  are 
worth  but  half  their  nominal  amount.  When  the  currency 
has  fallen  to  one  fourth  the  value  of  coin,  400  must  be  issued 
where  100  formerly  sufficed ;  and  the  deficit  in  the  receipts  be- 
ing added,  the  proportion  may  be  even  five  or  six  for  one. 

It  must  not  be  inferred,  however,  that  this  rapid  depreciation 
of  the  currency  will  seem  to  impede  traffic  or  to  paralyze  in- 
dustry. On  the  contrary  —  at  least  until  the  depreciation  has 
become  extreme,  say  500  for  1  —  commerce  and  labor  will  be 
galvanized  into  unnatural  activity,  and  a  deceitful  glow  of  an- 
imation and  success,  like  the  flush  of  a  fever,  will  appear  to 
pervade  the  nation.  Prices  rise,  of  course,  as  rapidly  as  the 
currency  falls ;  property  which  was  sold  for  100  to-day,  will 
command  500  or  1,000  to-morrow.  At  the  same  time,  money 
is  superabundant,  and  those  who  were  once  too  poor  to  buy 
can  now  easily  obtain  the  means  of  purchase.  The  pressure 
of  debt  is  also  lessened ;  obligations  are  cancelled  by  paying 
back  what  is  actually  but  one  half,  one  fourth,  or  a  still  smaller 
fraction,  of  the  real  value  which  was  due.  Ease  in  getting  rid 
of  old  debts  only  creates  a  thirst  for  contracting  new  ones. 
Commerce  is  thus  stimulated,  while  the  basis  on  which  it  rests 
is  every  day  becoming  less  secure.  A  reckless  spirit  of  specu- 
lation, akin  to  gambling  in  its  character  and  results,  appears 
to  have  seized  the  greater  part  of  the  community.  The  circu- 
lation of  Continental  money  in  America,  in  1779,  as  we  are 
told  by  a  writer  of  that  day,  was  "  never  more  brisk  and  quick, 
than  when  its  exchange  was  500  for  1."  And  M.  Thiers, 
speaking  of  the  depreciation  of  the  French  assignats  in  1795, 
says,  that  to  the  horrors  of  famine  were  added  the  scandals  of 
reckless  speculation  and  stockjobbing,  the  sale  of  merchandise 
which  had  no  existence,  as  the  pretended  traffic  was  only  bet- 
ting upon  prices,  and  the  diffusion  of  a  taste  for  luxury,  dissi- 
pation, and  excess,  which  is  the  invariable  concomitant  of 
sudden  mutations  of  fortune. 

We  are  now  prepared  to  explain  the  great  difference  be- 
tween convertible  bank  currency  and  inconvertible  bills,  or 
paper  money  properly  so  called,  —  that  the  latter  is  liable  to 
issue  in  excess,  and  consequent  depreciation,  while  the  former 


PAPER   MONEY.  383 

is  not.  We  have  seen  that  the  former  is  necessarily  liable  to 
perpetual  reflux  upon  the  institutions  which  issue  it,  the 
amount  remaining  in  active  circulation  not  depending  at  all 
upon  the  wishes  of  the  banks,  but  upon  the  convenience  of  the 
public.  This  reflux  takes  place  in  three  forms,  through  lodge- 
ments in  deposit,  the  repayment  of  loans  and  discounts,  and 
actual  presentation  at  the  counter  for  redemption  in  coin. 
These  are  but  three  forms  of  payment  to  the  banks,  and  in  the 
long  run,  they  must  equal,  and  for  a  time,  they  may  easily  ex- 
ceed, the  payments  out  of  the  banks.  It  is  for  the  public,  and 
not  for  the  banks,  to  decide  what  portion  of  this  reflux  shall 
consist  of  bills  and  what  of  specie,  and,  consequently,  what 
portion  of  each  shall  remain  in  circulation.  The  banks  can  do 
nothing  to  affect  this  result.  Let  them  pay  out  their  own  bills 
as  fast  as  they  may,  and  in  what  quantities  they  may,  the  in- 
flowing stream  will  be  of  corresponding  depth  and  volume. 
And  they  peril  their  own  safety  even  by  a  slight  tendency  to 
excess;  for  as  they  can  issue  their  bills,  in  the  majority  of 
cases,  only  by  discounting  the  notes  of  individuals  that  will  not 
mature  for  some  weeks,  while  their  own  bills  may  be  brought 
back  the  next  day,  the  reflux  of  any  excessive  issue  might  ea- 
sily exhaust  their  specie  reserve,  and  oblige  them  to  suspend 
payment.  And  the  public  are  sure  to  decide  rightly  what  por- 
tion of  the  reflux  shall  consist  of  bank-bills,  and  when  the  re- 
flux itself  shall  be  augmented.  If  the  currency  has  become 
redundant  because  trade  for  a  time  has  languished,  and  less 
money  is  needed  to  effect  the  fewer  exchanges  which  take 
place,  then  spare  funds  will  accumulate  in  the  hands  of  the 
dealers ;  and  these  funds,  because  there  is  nothing  else  to  be 
done  with  them,  will  be  lodged  on  deposit  in  the  banks.  But 
if  the  currency  be  redundant  because  there  has  been  a  specu- 
lative fever,  which  has  raised  the  prices  of  commodities,  and 
therefore  called  for  more  money  wherewith  to  circulate  them, 
then  there  will  be  a  demand  for  specie  to  send  abroad,  where 
commodities  can  be  had  on  cheaper  terms ;  and  there  will  be 
a  reflux  of  the  bills  in  order  to  obtain  the  specie.  Those  who 
fear  an  excessive  issue  of  convertible  bank-bills,  might  as  well 
apprehend  that  Lake  Erie  would  overflow  its  banks  and  flood 
all  the  surrounding  country,  because  it  is  constantly  receiving 
the  surplus  waters  of  the  three  upper  lakes  and  of  innumer- 


384  PAPER    MONEY. 

able  tributary  streams.  They  forget  that  the  average  level  of 
the  lake  depends,  not  upon  the  quantity  of  water  flowing  into 
it,  but  upon  the  quantity  that  flows  out  of  it  over  Niagara 
Falls ;  and  that  no  cause  could  affect  the  level  except  by  rais- 
ing or  lowering  the  bar  at  the  opening  of  Niagara  River,  which 
regulates  the  rate  of  the  efflux. 

But  with  paper  money  it  is  not  so.  In  this  case,  there  is 
no  reflux  and  no  occasion  for  repayment,  so  that  the  quantity 
in  circulation  depends  exclusively  upon  the  quantity  emitted. 
The  currency  that  is  supplied  with  inconvertible  paper  is  like 
the  Dead  Sea,  which  receives  the  waters  of  the  Jordan,  but 
has  no  efflux ;  augment  the  flow  into  it,  and  the  level  must 
rise.  The  government  pays  out  its  bills  of  credit,  or  paper 
money,  in  discharge  of  its  debts,  in  the  purchase  of  commodi- 
ties, and  in  the  payment  of  wages  and  salaries ;  in  neither  of 
these  cases  does  it  create  any  necessity  for  repayment,  so  as 
to  bring  the  bills  back  again.  True,  the  paper  money  is  re- 
ceivable by  the  state  in  payment  of  taxes  and  other  govern- 
ment dues ;  but  then  there  will  be  no  necessity  of  issuing  it 
at  all,  unless  the  expenditures  largely  exceed  the  receipts ;  and 
it  is  the  amount  of  this  excess,  or  the  extent  of  the  annual  de- 
ficit, —  very  large  in  a  revolutionary  period,  or  in  case  of  a  civil 
war,  —  which  determines  the  amount  of  the  annual  addition 
to  the  inconvertible  paper  currency.  As  this  currency  is  not 
available  for  remittances  abroad,  no  diminution  of  it  is  possi- 
ble through  the  purchase  of  commodities  in  foreign  lands. 
Every  exit  and  channel  of  reflux  being  thus  dammed  up,  the 
emission  of  every  additional  bill  must  advance  the  period  when 
depreciation  will  begin,  or  increase  the  rate  of  that  deprecia- 
tion. To  adopt  Mr.  Tooke's  language,  the  distinction  be- 
tween bank  currency  and  government  paper  money  is,  that  the 
latter  is  "paid  away  and  is  not  returnable  to  the  issuer,  whereas 
the  bank-notes  are  only  lent,  and  are  returnable  to  the  issuers" 
Because  the  paper  money  cannot  be  returned,  it  remains  in 
circulation  as  an  agent  to  raise  prices,  so  that  it  "  will  consti- 
tute a  fresh  source  of  demand,  and  must  be  forced  into  and 
permeate  all  the  channels  of  circulation." 

If  the  banks  suspend  specie  payment,  their  bills  become 
inconvertible,  and  are  thus  far  assimilated  to  paper  money. 
Still,  though  one  channel  of  reflux  is  thus  dammed  up,  the  bills 


PAPER    MONEY.  385 

being  no  longer  presentable  for  redemption  in  coin,  they  can 
still  be  returned  to  the  banks  on  deposit,  and  in  repayment  of 
the  loans  and  discounts.  Bank  paper  money  is  thus  distin- 
guished from  government  paper  money,  this  last  not  being  re- 
turnable at  all.  It  is  expended  in  the  purchase  of  naval  and 
military  stores,  in  building  ships,  in  constructing  public  edifi- 
ces, and  in  the  payment  of  services  performed  for  the  state,  no 
means  being  usually  taken  to  insure  its  ultimate  return  to  the 
exchequer.  The  bank  issues,  on  the  other  hand,  being  made 
only  in  the  discount  of  approved  promissory  notes  of  short 
date,  naturally  return  after  a  short  interval,  even  if  they  are  not 
redeemable  in  specie.  So  long,  then,  as  the  banks  confine 
themselves  to  their  proper  functions,  and  do  not  squander  their 
funds,  or  let  them  out  on  doubtful  security,  there  is  no  reason 
why,  even  after  a  suspension,  their  currency  should  be  depre- 
ciated, except  to  a  very  small  extent.  Thus,  the  Bank  of  Eng- 
land suspended  specie  payments  in  1797,  but  its  notes  re- 
mained at  par,  or  within  two  per  cent  of  par,  till  1801.  Then, 
indeed,  a  heavy  demand  for  gold  to  be  exported,  on  account  of 
the  large  purchases  of  corn  which  were  rendered  necessary  by 
the  failure  of  the  English  crops,  and  of  large  expenditures  by 
the  British  government  in  prosecution  of  the  war,  made  specie 
rise  to  a  premium,  or,  what  is  the  same  thing,  the  bank-notes 
to  be  depreciated  seven  or  eight  per  cent.  These  disturbing 
causes  being  removed,  the  currency  rose  again  in  1803,  and 
continued  at  a  point  only  2|  per  cent  below  par  till  1809. 

It  is  unnecessary  to  dwell  upon  this  point,  however.  A  sus- 
pension of  specie  payments  by  the  banks  is  not  likely  to  be 
again  sanctioned,  either  by  law  or  public  opinion,  for  any  long 
period.  It  is  enough  to  have  shown,  that  government  expen- 
diture and  the  issue  of  government  paper  money  are  the  chief 
causes  of  a  depreciation  of  the  currency,  and  that  the  banks 
cannot  contribute  much  to  this  result  except  by  becoming  the 
agents  of  government,  or  by  misconduct  which  proceeds  rather 
from  fraud  than  ignorance  or  involuntary  error. 

I  return  to  a  view  of  the  consequences  of  an  excessive  de- 
preciation of  paper  money,  and  of  the  measures  which  then 
become  necessary  for  restoring  the  currency  to  a  specie  stand- 
ard. As  soon  as  the  bills  have  fallen  considerably  in  value, 
two  prices  are  established  for  commodities,  one  in  specie  and 


PAPER    MONEY. 


the  other  in  paper  currency,  the  difference  between  the  two 
marking  the  rate  of  depreciation.  When  this  difference  has 
become  inordinate,  the  progress  of  the  depreciation  is  most 
rapid,  the  value  of  the  currency  fluctuating  so  suddenly  and 
largely,  that  most  persons  are  unwilling  to  receive  it  on  any 
terms.  The  rate  to-day  may  be  500,  and  to-morrow  600,  for 
1 ;  under  these  circumstances,  also,  the  rate  will  be  found  to 
vary  in  different  localities,  and  be  variously  estimated  by  dif- 
ferent tradesmen.  So  much  confusion  and  uncertainty  are 
thus  created,  that,  by  a  spontaneous  movement  of  the  whole 
community,  the  paper  currency  is  discarded  altogether,  the 
price  in  specie  is  the  only  one  that  will  be  received  in  payment 
for  commodities;  and  if  the  paper  has  not  already  ceased, 
through  the  action  of  the  legislature,  to  be  legal  tender,  ac- 
knowledgments of  debts  are  made  with  an  express  stipulation 
that  the  payment  shall  be  in  specie,  or  some  other  commodity 
of  fixed  value.  Such  a  restoration  of  the  standard  seldom  re- 
quires any  action  of  the  government ;  it  is  the  voluntary  and 
united  act  of  the  whole  people,  having  been  dictated  by  the 
necessities  of  the  case. 

The  immediate  consequences  of  this  reversion  to  a  specie 
currency  are  in  striking  contrast  with  the  results,  already  no- 
ticed, of  the  first  issue  of  paper  money  and  its  gradual  depre- 
ciation. The  latter  seemed  to  animate  industry  and  com- 
merce to  relieve  the  pressure  of  debt,  and  to  supply  abundant 
funds  for  enterprises  which  must  otherwise  have  been  aban- 
doned ;  but  the  former  seems  to  carry  the  community  back,  by 
a  cruel  revulsion,  to  worse  evils  than  those  from  which  it  had 
apparently  been  rescued.  It  is  the  state  of  collapse  that  some- 
times follows  the  excitement  and  delirium  of  a  fever.  It  is 
now  seen  that  the  issue  of  paper  money  is  really  a  desperate 
measure,  that  the  relief  which  it  promises  is  but  temporary, 
and  that  the  prosperity  which  it  causes  is  wholly  fallacious. 
As  money  rises  from  a  low  valuation  to  a  higher  one,  wages 
are  depressed,  prices  fall,  trade  stagnates,  and  bankruptcies  be- 
come numerous ;  and  these  evils  are  the  more  serious,  as  the 
depreciation  was  great,  and  the  revulsion  sudden.  Formerly, 
it  was  the  creditors  who  were  injured,  being  obliged  to  receive 
payment  in  a  currency  less  valuable  than  the  one  in  which  the 
debt  was  contracted ;  now  the  debtors,  who  are  more  numer- 


PAPER    MONEY.  387 

ous  and  less  able,  to  bear  losses,  must  suffer  harm  and  wrong, 
being  required  to  pay  more  than  they  received,  and  to  do  this 
at  a  time  when,  from  the  depression  of  wages,  the  abandon- 
ment of  industrial  and  commercial  undertakings,  and  the  fall 
of  profits,  they  are  least  able  to  bear  an  additional  burden. 
All  these  hardships  are  summarily  attributed  to  one  cause, 
more  frequently  spoken  of  than  understood,  —  "a  scarcity  of 
money "  ;  it  means  only  a  higher  real  value  of  money,  the 
prostration  of  credit,  the  consequent  inactivity  of  capital,  and 
general  despondency. 

As  the  prosperity  growing  out  of  the  earlier  part  of  the  ex- 
periment with  paper  money  strengthened  the  hands  of  the  rev- 
olutionary government,  so  the  disasters  and  suffering  attendant 
upon  its  close  create  a  reaction,  and  weaken  the  cause  of  the 
insurgents.  The  popular  discontent  thus  generated  tends 
either  to  the  reestablishment  of  the  old  form  of  government, 
or  to  anarchy. 

It  was  so  at  the  close  of  the  Revolutionary  war  in  this  coun- 
try, when  both  the  people  and  the  army,  exhausted  by  the 
efforts  and  sacrifices  which  they  had  made,  bankrupt  in  fortune, 
and  seeing  no  resources  open  to  them,  were  for  a  while  on  the 
point  of  turning  their  arms  against  each  other.  Nothing  but 
the  moderation,  wisdom,  and  firmness  of  their  great  Com- 
mander-in-chief saved  the  country  from  the  horrors  of  a  mili- 
tary usurpation.  The  establishment  of  peace  seemed  only  to 
render  matters  worse.  The  courts  then  began  in  earnest  to 
enforce  the  settlement  of  accounts  and  the  payment  of  debts ; 
and  the  property  seized  for  this  purpose  being  sold  at  a  great 
sacrifice,  its  former  owners  found  themselves  homeless  and 
penniless,  and  still  burdened  with  the  greater  part  of  their 
pecuniary  obligations.  The  unthinking  multitude  then  began 
to  clamor  for  "  stop-laws,"  or  enactments  to  delay  process 
and  execution  after  judgment  had  been  obtained  for  debt; 
for  "  tender-laws,"  compelling  the  creditor  to  accept  in  satisfac- 
tion of  his  claim  any  property  of  the  debtor  at  a  fixed  valua- 
tion or  appraisement,  instead  of  offering  it  at  auction  for  cash, 
when  it  would  bring  but  a  trifle ;  and  above  all,  for  a  new 
and  large  issue  of  paper  money,  the  rapid  depreciation  of 
which  would  enable  debtors  to  get  rid  of  their  obligations  on 
very  easy  terms.  Several  States  were  weak  enough  to  yield 


388  PAPER    MONEY. 

to  these  demands,  and  thus  only  prolonged  the  period  of 
uncertainty,  confusion,  and  suffering,  besides  aggravating  the 
evil  by  injustice.  Massachusetts  resisted,  seeing  that  really 
the  best  and  easiest  mode  of  escaping  present  difficulties  was 
to  adhere  resolutely  to  a  specie  currency,  and  to  enforce  a 
speedy  settlement  of  all  outstanding  claims,  so  that  indus- 
try and  commerce  might  at  last  revive,  without  further  im- 
pediment or  drawback  from  the  past.  The  consequence 
was,  that  a  formidable  rebellion  broke  out  in  this  State  in 
1786,  the  avowed  object  of  the  insurgents  being  to  close  by 
violence  the  courts  of  law,  thus  putting  a  stop  to  legal  meas- 
ures for  the  collection  of  debts,  and  to  compel  the  government 
to  make  a  fresh  issue  of  depreciating  currency.  The  insurrec- 
tion was  suppressed  with  difficulty,  and  the  terror  which  it  in- 
spired had  this  indirect  good  result,  —  that  it  animated  and 
strengthened  the  general  effort  which  was  then  made  to  create 
a  stable  government  for  the  whole  Union.  This  effort  led  to 
the  adoption  of  the  Federal  Constitution,  one  article  of  which, 
as  already  noticed,  prohibits  the  emission  of  "  bills  of  credit " 
and  the  enactment  of  "  tender-laws." 

In  France,  the  final  abandonment  of  the  depreciated  assig-- 
nats  and  mandats,  and  the  difficulties  in  which  the  government 
was  thus  involved,  had  consequences  equally  serious.  The  suf- 
ferings of  the  people  exasperated  them  alike  against  the  Revo- 
lution and  the  authors  of  it,  whom  they  had  so  recently  followed 
into  the  wildest  excesses  of  Jacobinism.  A  reaction  took  place 
in  favor  of  the  ancient  dynasty,  which  was  so  general,  that  the 
royalists  obtained  the  command  of  the  elections,  and  seemed 
likely  to  obtain  their  end  by  a  peaceable  vote  of  the  two  Coun- 
cils or  legislative  assemblies.  The  Directory,  indeed,  aided  by 
the  army,  which  was  still  republican  in  sentiment,  prevented 
this  result  through  the  coup  d'etat  of  the  18th  Fructidor,  1797  ; 
they  seized  the  leading  royalist  deputies,  and  sentenced  them 
to  deportation.  But  the  triumph  was  dearly  bought,  as  it 
marked  the  ascendency  of  military  power,  and  foreshadowed 
the  dominion  of  Napoleon. 

It  follows  from  this  whole  review  of  the  subject  of  paper 
money,  which  I  have  intentionally  based,  as  far  as  possible, 
upon  historical  facts  rather  than  abstract  reasoning,  that  the 
depreciation  of  it  is  attributable  solely  to  excess  in  its  issue. 


PAPER   MONEY.  389 

If  this  excess  could  be  prevented,  that  is,  if  the  amount  of  pa- 
per currency  could  be  kept  precisely  equal  to  what  the  amount 
of  metallic  currency  would  be  in  case  there  were  no  paper  in 
circulation,  then  there  would  be  no  depreciation  of  the  paper ; 
nay,  the  paper  might  even  command  a  premium  over  coin,  if 
the  aggregate  value  of  it  were  made  less  than  what  the  coin 
would  amount  to,  and  if  it  were  also  possible  to  prevent  the 
importation  of  specie.  Money  acquires  the  power  of  exercis- 
ing its  functions,  not  from  any  intrinsic  qualities  that  it  pos- 
sesses, but  solely  from  convention.  To  adopt  Mr.  Mill's  lan- 
guage, "convention  is  quite  sufficient  to  confer  the  power, 
since  nothing  more  is  needful  to  make  a  person  accept  any- 
thing as  money,  and  even  at  any  arbitrary  value,  than  the  per- 
suasion that  it  will  be  taken  from  him  on  the  same  terms  by 
others."  The  value  of  paper  money,  not  depending  at  all 
upon  its  cost  of  production,  is  regulated  solely  by  its  quantity. 
A  certain  determinable  sum  of  money  is  needed  in  every  na- 
tion to  effect  its  current  exchanges,  and  to  maintain  prices  at 
an  equilibrium  with  the  average  prices  of  commodities  through- 
out the  commercial  world.  Coin  being  banished,  if  the  issue 
of  paper  money  is  less  than  this  sum,  the  paper  will  command 
a  premium ;  if  greater,  it  will  be  at  a  discount. 

The  difficulty  is,  that  this  sum  is  a  varying  quantity,  depend- 
ing upon  the  state  of  trade,  of  public  confidence,  of  the  foreign 
exchanges  as  affected  by  the  relative  amounts  of  the  exports 
and  imports,  and  other  circumstances  which  cannot  easily  be 
determined.  The  difference  in  value  between  the  coin  and  the 
paper  money  is  usually  taken  as  a  measure  of  the  depreciation 
of  the  latter ;  and  so  it  is,  if  the  value  of  gold  and  silver  be 
taken  as  the  standard.  But  it  should  not  be  forgotten  that 
this  standard  itself  may  vary,  not  only  in  accordance  with  the 
greater  or  less  productiveness  of  the  mines  whence  the  pre- 
cious metals  are  obtained,  but  also  according  to  the  varying 
demand  for  gold  and  silver  in  different  localities.  A  general 
war  in  Europe,  causing  large  sums  of  specie  to  be  moved 
about  in  the  military  chests  of  great  armies,  and  impeding  the 
intercourse  by  sea  which  is  the  only  means  of  equalizing  pri- 
ces ;  the  consternation  produced  by  revolutionary  movements 
that  tend  to  anarchy,  or  by  the  progress  of  invasion  from 
abroad,  causing  large  amounts  of  money  to  be  hoarded ;  and 
33* 


390  PAPER    MONEY. 

a  great  failure  of  the  crops,  making  heavy  importations  of 
grain  necessary,  which  must  be  paid  for  in  specie,  —  these  and 
other  circumstances  may  raise  the  value  of  specie  in  different 
places  much  above  its  average,  and  retain  it  at  the  advanced 
valuation  for  a  considerable  time.  It  is  the  opinion  of  Mr. 
Tooke  and  other  well-informed  writers,  that  the  difference  be- 
tween Bank  of  England  notes  and  bullion  from  1810  to  1817, 
amounting  at  times  to  25  per  cent,  "  was  not  greater  than  the 
enhancement  in  value  of  gold  itself,  and  that  the  paper,  though 
depreciated  relatively  to  the  then  value  of  gold,  did  not  sink 
below  the  ordinary  value,  at  other  times,  either  of  gold  or  of  a 
convertible  paper."  There  was  certainly  no  excessive  issue  of 
bank-notes  at  that  epoch  enough  to  account  for  their  deprecia- 
tion ;  the  circulation  of  the  Bank  of  England,  indeed,  was  in- 
creased, but  no  more  so  than  was  necessary  to  fill  up  the  gap 
in  the  currency  caused  by  the  destruction  of  a  large  amount  of 
country  bank  paper,  and  to  accommodate  the  rapidly  increas- 
ing business  of  the  country. 

Reasoning  upon  these  principles,  Mr.  Ricardo  published,  in 
1816,  his  "  Proposals  for  an  Economical  and  Secure  Cur- 
rency." The  plan  was,  to  supersede  the  use  of  gold  coin  alto- 
gether, by  requiring  the  Bank  of  England  to  redeem  its  notes 
by  the  payment,  not  of  coin,  but  of  gold  bars,  or  bullion,  of  the 
standard  purity,  at  the  mint  price  of  gold  (£3  17 s.  10|d.  an 
ounce),  or  at  such  other  price  as  Parliament  should  determine. 
These  gold  bars,  or  ingots,  not  being  fitted  for  circulation  as 
currency,  would  not  be  called  for  except  when  they  were 
needed  for  exportation;  but  if  the  issue  of  bank-notes  ever 
became  excessive,  so  that  they  tended  to  depreciation,  the  gold 
would  be  then  needed  for  export,  and  the  issue  would  be 
checked,  or  the  notes  be  poured  back  upon  the  Bank.  Thus 
the  heavy  expense  of  a  metallic  currency  would  be  saved,  and 
full  security  would  be  given  that  the  value  of  the  paper  cur- 
rency would  always  correspond  with  that  of  gold. 

Government  adopted  this  scheme  as  a  portion  of  its  plan  for 
the  gradual  resumption  of  specie  payments.  The  act  for  this 
purpose,  commonly  known  as  Peel's  Bill,  was  passed  in  1819. 
It  required  the  Bank,  from  the  1st  of  February,  1820,  to  the 
1st  of  October  in  the  same  year,  to  pay  its  notes  in  bullion  of 
standard  fineness,  at  the  rate  of  £  4  Is.  per  ounce.  From  the 


PAPER    MONEY.  391 

1st  of  October,  1820,  to  the  1st  of  May,  1821,  it  was  to  pay 
bullion  at  the  rate  of  £  3  19s.  Qd.  per  ounce ;  and  after  this 
last  date,  it  was  to  redeem  its  notes  in  bullion  at  the  old  mint 
price  of  £  3  17s.  10|d.  an  ounce.  Two  years  afterwards,  it 
was  to  pay  coin  at  this  price,  the  resumption  being  then  com- 
plete. But  as  the  Bank  had  abundance  of  coin  in  its  vaults, 
and  as  the  forgery  of  the  one-pound  notes,  a  large  amount  of 
which  it  was  necessary  by  this  scheme  to  keep  in  circulation  as 
a  substitute  for  guineas  or  sovereigns,  caused  much  trouble 
and  uncertainty,  the  Directors  anticipated  the  operation  of  the 
act  by  beginning  to  redeem  the  notes  in  coin  at  the  full  price 
some  time  before  the  date  specified. 

The  plan  of  gradual  resumption  by  successive  steps  is  a 
good  one,  as  it  relieves  commerce  from  the  violent  shock  which 
it  would  experience,  if  the  currency  were  suddenly  raised  from 
a  state  of  considerable  depreciation  to  par.  Should  another 
suspension  of  specie  payments  by  the  banks  of  this  country 
unhappily  take  place,  the  best  policy  for  the  legislature  would 
be,  to  sanction  the  depreciation  at  its  actual  amount  for  the 
current  month,  on  condition  that  the  banks  should  immedi- 
ately pay  specie  for  their  notes  at  this  depreciated  rate,  and 
advance  it  two  or  three  per  cent  each  successive  month,  till  it 
was  brought  again  to  par.  Confidence  would  thus  be  imme- 
diately restored,  further  depreciation  would  be  impossible,  a 
time  would  at  once  be  fixed  for  resumption,  while  the  run 
upon  the  banks  would  cease  almost  entirely,  as  each  holder  of 
the  notes  would  perceive  that  he  would  gain  two  or  three  per 
cent  a  month  by  delaying  their  presentation. 


392  THE    DECLINE    IN    THE    VALUE    OF    MONEY. 

CHAPTER    XXII. 

THE    DECLINE    IN    THE    VALUE    OF    MONEY. 

IT  is  now  generally  admitted  that  a  great  revolution  is  tak- 
ing place  in  the  commercial  and  monetary  world,  caused  by  a 
considerable  decline  in  the  value  of  money,  —  a  revolution  the 
like  of  which  has  not  occurred  for  more  than  two  centuries, 
and  of  which  there  is  but  one  parallel  in  all  history.  The  two 
precious  metals,  after  maintaining  a  nearly  uniform  value  for 
a  very  long  period,  are  now,  owing  to  a  sudden  and  immense 
increase  in  the  supply  of  gold,  undergoing  a  great  change,  not 
only  in  their  relation  to  each  other,  but  in  their  value  as  com- 
pared with  that  of  all  other  commodities  in  the  world.  This 
change  is  not  to  be  a  merely  nominal  one.  It  might  seem,  in- 
deed, that,  as  the  precious  metals  are  a  universal  measure  of 
value,  any  depreciation  of  them  would  amount  only  to  a  gen- 
eral rise  of  prices,  all  commodities  being  affected  in  precisely 
the  same  ratio,  so  that  their  relation  to  each  other  would  re- 
main unaltered.  This  is  true  ;  such  a  change  would  not  ben- 
efit or  injure  any  one.  But  all  stipulations  for  the  payment  of 
money  at  a  future  day  will  be  really  affected  to  the  full  extent 
of  the  change  which  the  precious  metals  may  undergo  while 
the  contract  is  outstanding.  A  single  instance  will  enable  us 
to  see  the  vast  importance,  in  this  respect,  of  a  depreciation  in 
the  value  of  money.  The  national  debt  of  Great  Britain,  — 
that  great  incubus  which  has  been  supposed  to  be  immovably 
fixed  upon  the  shoulders  of  the  nation,  and  which  has  been 
properly  regarded  as  putting  the  English  people  under  very 
heavy  bonds  to  keep  the  peace,  as  any  considerable  enlarge- 
ment of  it  by  other  wars  would  make  the  burden  of  paying  its 
annual  interest  well-nigh  intolerable,  —  this  mountain  of  debt 
must  shrink  comparatively  into  a  mole-hill.  It  may  all  be  paid 
off  in  a  few  years,  with  as  little  effort  as  it  now  costs  to  pay 
merely  the  interest.  A  revolution  which  will  have  this  effect, 
and  a  proportional  one  on  all  other  contracts  to  deliver  money 
at  a  future  day,  may  well  be  deemed  a  momentous  one. 


THE    DECLINE    IN    THE    VALUE    OF    MONEY.  393 

The  first  points  to  be  considered  are,  the  probable  extent  of 
the  depreciation,  and  the  time  within  which  it  may  be  ex- 
pected. Fortunately,  there  is  one  example  on  record  of  a  per- 
fectly similar  change,  the  study  of  which  will  enable  us  to  see 
the  true  nature  and  probable  limits  of  the  present  revolution. 
I  refer,  of  course,  to  the  effect  produced  in  Europe  by  the  great 
supplies  obtained  from  the  American  mines  in  the  sixteenth 
and  seventeenth  centuries. 

We  do  not  need  to  know  the  whole  amount  of  gold  and  sil- 
ver actually  in  use  in  the  world,  either  as  coin  or  plate,  before 
the  discovery  of  America.  It  is  a  well-ascertained  principle, 
that  the  permanent  or  average  value  of  a  commodity  depends, 
not  on  the  larger  or  smaller  stock  of  it  already  in  being,  but  on 
the  average  cost  of  its  production.  If  a  pound  of  iron  is  worth 
only  one-thousandth  part  as  much  as  a  pound  of  silver,  it  is 
not  because  there  are  a  thousand  times  as  much  iron  now  in 
use  as  silver,  but  because  it  requires  a  thousand  times  as  much 
labor  to  raise  an  additional  pound  of  silver  from  the  mines,  as 
it  does  a  pound  of  iron.  If  the  stock  already  in  use  be  ever  so 
large,  the  value  of  it  cannot  permanently  fall  below  the  cost  of 
production ;  for  as  the  labor  of  obtaining  more  would  not  be 
remunerated,  no  more  would  be  produced ;  and  the  constant 
consumption  would  steadily  diminish  the  stock,  till  the  value 
of  what  remained  would  rise  high  enough  to  pay  the  laborer 
for  the  effort  of  procuring  a  fresh  supply.  On  the  other  hand, 
if  the  stock  is  ever  so  small,  no  one  will  pay  more  for  any  por- 
tion of  it  than  it  would  cost  him  to  raise  or  manufacture  the 
article  for  himself.  The  steady  average  value,  then,  the  point 
about  which  the  price  oscillates,  never  departing  from  it  far  in 
either  direction,  is  the  cost  of  production ;  and  a  tolerably  ac- 
curate measure  of  this  cost,  so  long  as  the  demand  remains 
the  same,  is  the  quantity  annually  produced. 

It  is  important  to  recollect  this,  as  many  persons  have  been 
led  to  believe,  because  the  very  great  addition  made  by  the 
California!!  and  Australian  washings  to  the  stock  of  gold  did 
not  immediately  and  sensibly  affect  the  value  of  that  metal, 
that  no  future  depreciation  of  it  is  to  be  expected.  But  till  it 
is  ascertained  that  this  is  a  permanent  increase  of  supply,  and 
that  the  newly  discovered  auriferous  districts  will  continue  for 
many  years  to  yield,  not  probably  as  much  as  they  have  done, 


394  THE    DECLINE    IN    THE    VALUE    OF    MONEY. 

but  enough  to  make  the  former  sources  of  supply  appear  com- 
paratively insignificant,  and  thus  to  diminish  the  average  cost 
of  production,  the  change  of  value  will  be  too  small  to  be  gen- 
erally appreciated. 

Down  to  the  time  of  Columbus,  the  average  annual  supply 
of  the  two  precious  metals  certainly  did  not  exceed  three  mil- 
lions of  dollars.*  How  much  was  this  increased  by  the  sup- 
plies from  America  during  the  sixteenth  and  seventeenth  cen- 
turies ?  Humboldt  is  here  the  only  authority  generally  relied 
upon  ;  and  as  he  made  very  extensive  and  laborious  investiga- 
tions, was  well  acquainted  with  all  that  had  been  written  upon 
the  subject,  had  ready  access  to  official  sources  of  information 
unknown  to  former  writers,  was  well  versed  in  the  theory  and 
practice  of  mining,  and  critically  examined  some  of  the  most 
celebrated  mines,  it  is  probable  that  his  statements  are  a  very 
near  approximation  to  the  truth.  He  tells  us  that  the  annual 
supplies  of  the  precious  metals  obtained  from  America  were 
as  follows. 


America  discovered  ia  1492. 

From  1492  to  1500  .......  250,000 

"     1500  to  1545  .......  3,000,000 

"     1545  to  1600  .......  11,000,000 

"     1600  to  1700  .......  16,000,000 

"     1700  to  1750  .......  22,500,000 

"  1750  to  1803  .......  35,300,000 

Hence  it  appears,  if  we  suppose  the  Old  World  continued 
to  furnish  as  much  as  before,  that  in  the  first  half  of  the  six- 
teenth century  the  supplies  from  America  had  doubled  the 
annual  product.  In  the  latter  half  of  this  century,  they  ren- 
dered it  nearly  five  times  as  large.  In  the  seventeenth  century, 
it  became  over  six  times,  and  in  the  eighteenth,  over  eleven 
times,  larger  than  it  was  before  1500.  The  great  increase  in 
the  latter  half  of  the  sixteenth  century  was  owing  to  the  dis- 
covery of  the  mines  of  Potosi,  which  were  first  systematically 
worked  in  1545. 

How  great  and  how  rapid  a  depreciation  of  the  value  of 
money  was  caused  by  this  vast  increase  of  supply?  Here, 

*  Humboldt  estimates  that  all  the  European  and  Asiatic  mines,  as  late  as  1800, 
did  not  yield  annually  more  than  five  millions  of  dollars. 


THE    DECLINE    IN    THE    VALUE    OF    MONEY.  395 

again,  the  means  for  forming  an  opinion  are  very  imperfect, 
being  chiefly  an  extensive  and  laborious  comparison  of  the. 
prices,  at  different  periods,  of  certain  leading  commodities, 
which  are  in  uniform  and  perpetual  demand.  The  staple  arti- 
cles of  food,  such  as  grain  and  meat,  are  the  best  for  this  pur- 
pose, as  it  may  be  presumed  that  they  are  not  often  produced 
in  larger  quantities  than  are  wanted,  and  as  nearly  the  same 
amount  of  labor  is  required  for  the  production  of  a  given  quan- 
tity of  them  in  one  century  as  in  another.  If  a  genuine  record 
can  be  obtained  of  the  prices  actually  paid,  at  one  place,  for 
such  articles,  for  a  long  series  of  years,  the  variations,  if  any,  in 
the  value  of  the  precious  metals  during  those  years  may  be 
deduced  from  it,  allowance  being  made,  of  course,  for  any 
alterations  of  the  quantity  of  pure  metal  passing  under  the 
same  denomination  of  coin,  and  for  the  state  of  the  coinage, 
whether  worn  and  clipped,  or  fresh  and  perfect.  Such  a  record 
is  found  in  the  accounts  of  Eton  College,  and  in  the  lists  of 
prices  collected  by  Bishop  Fleetwood  and  M.  Dupre  de  St. 
Maur.  The  conclusions  deduced  by  various  writers  from  these 
accounts  do  not  agree  very  well;  but  the  variations  do  not 
materially  affect  the  result  for  the  purpose  which  we  now  have 
in  view.  We  select  the  computations  made  by  Adam  Smith, 
as  they  were  made  with  great  care  and  knowledge  of  the  sub- 
ject, and  have  been  generally  accepted  by  later  writers  on  Po- 
litical Economy. 

Adam  Smith  says  the  American  mines  do  not  seem  to  have 
produced  any  effect  upon  prices  till  after  1570,  though  the 
mines  of  Potosi  had  then  been  actively  worked  for  a  quarter 
of  a  century.  Between  1595  and  1620,  silver  fell  to  about  one 
third  of  its  former  value ;  and  about  1636,  it  had  fallen  to  one 
fourth  part  of  that  value,  where  it  has  remained  with  little 
variation  almost  to  the  present  day.  Before  1570,  a  quarter 
(eight  bushels)  of  wheat  of  middle  quality  was  sold  in  Eng- 
land, on  an  average  of  a  long  period  of  years,  for  about  two 
ounces  of  pure  silver ;  about  1600,  (still  taking  an  average  of 
many  years,  so  that  the  very  good  and  very  bad  crops  may 
offset  each  other,)  the  price  had  advanced  to  a  little  over  six 
ounces ;  about  1636,  it  had  risen  to  nearly  eight  ounces.  The 
average  value  of  a  quarter  of  wheat  in  England,  from  the 
repeal  of  the  Corn  Laws  up  to  1852,  did  not  vary  much  from 


396  THE    DECLINE    IN    THE    VALUE    OF    MONEY. 

forty-three  shillings,  which  contain  almost  exactly  eight  ounces 
.of  pure  silver. 

Comparing  these  results  with  the  table  already  given  of  the 
annual  product  of  the  precious  metals,  we  find,  —  1.  That  dou- 
bling' the  annual  product  of  money  for  half  a  century  had  no  effect 
on  its  value,  or  did  not  raise  prices  at  all;  2.  That  making  the 
annual  product  five  times  as  great  had  no  effect  upon  its  value 
for  25  years,  after  which  time,  however,  the  value  gradually  fell 
to  one  third  of  what  it  had  been;  3.  That  about  36  years  after  the 
annual  product  had  become  six  times  as  great,  the  value  had  fallen 
to  one  fourth  of  its  former  amount;  4.  That  from  1636  to  1848, 
or  212  years,  the  value  of  the  precious  metals  underwent  no  ma- 
terial alteration,  though  meanwhile  the  annual  supply  of  them 
had  become  eleven  or  twelve  times  greater  than  what  it  had  been 
before  the  discovery  of  America* 

These  facts  satisfactorily  support  two  general  conclusions : 
—  1.  That  a  very  considerable  increase  of  the  supply  may 
take  place  without  any  perceptible  change  in  the  value; 
2.  That  the  alteration,  when  it  does  occur,  is  very  slow  and 
gradual,  the  variation  from  one  year  to  another  being  hardly 
perceptible. 

Such  was  the  result  of  the  only  experiment  recorded  in  his- 
tory, which  enables  us  to  form  any  conjecture  as  to  the  prob- 
able effect  upon  the  money-market  of  the  vast  addition  which 
has  been  made  to  the  annual  supply  of  gold  within  a  few  years 
by  the  discoveries  in  Russia,  California,  and  Australia.  To 
make  the  comparison  clear  and  obvious,  I  have  stated  the  re- 
sults in  their  broadest  form,  or  with  the  fewest  limitations  and 
doubts.  There  will  afterwards  be  considerations  to  suggest 
which  will  modify  the  conclusions  to  be  drawn  from  these 
statements. 

Let  us  now  see  how  great  have  been  the  changes  in  the  an- 
nual supply  during  the  present  century.  About  the  year  1800, 

*  According  to  J.  B.  Say,  however,  whose  conclusions  are  based  upon  the  lists  of 
prices  collected  by  M.  Dupre  de  St.  Maur,  though  they  do  not  appear  to  have  been 
so  carefully  worked  out  as  those  of  Smith,  silver  fell  to  one  half  of  its  former  value 
as  early  as  1536,  and  to  one  fourth  of  that  value  as  early  as  1602.  remaining 
unchanged  at  this  point  till  1800.  But  I  cannot  find  any  satisfactory  evidence 
that  the  value  of  silver  was  at  all  affected  until  the  mines  of  Potosi  for  a  consider- 
able period  had  been  pouring  out  their  vast  supplies,— that  is,  for  some  years  after 
1545. 


THE    DECLINE    IN    THE    VALUE    OF    MONEY.  397 

the  annual  supply  of  gold  amounted  to  $  12,648,000,  and  of 
silver  to  $  36,289,008 ;  making  a  total  of  $  48,937,008.  There 
is  reason  to  believe  that  the  large  portion  of  this  product  which 
was  furnished  by  the  American  mines  was  rather  increased 
than  diminished  up  to  1810,  when  the  contest  began  which 
finally  produced  the  independence  of  the  Spanish  American 
colonies.  The  revolutionary  troubles,  and  the  proscription  of 
the  old  Spanish  families  to  whom  the  mines  chiefly  belonged, 
caused  the  works  in  many  cases  to  be  abandoned,  and  there 
was  a  great  falling  off  of  the  product.  Mr.  Jacob  estimated, 
that,  for  the  twenty  years  ending  with  1829,  they  did  not  yield 
annuaUy  over  $  20,000,000,  or  considerably  less  than  half  of 
their  former  product.  But  he  evidently  exaggerates  the  falling 
off;  and  the  estimate  which  Mr.  McCulloch  formed  in  1834 
may  be  safely  extended  to  the  whole  period,  making  the  an- 
nual supply  from  all  parts  of  the  earth  to  be  $30,000,000. 
Soon  after  1834,  the  gold  product  of  the  Russian  mines  and 
washings  began  to  swell  the  amount  very  rapidly,  so  that  Mr. 
McCulloch  affirmed,  in  1845,  that,  if  the  supply  from  this 
source  should  continue  a  few  years  longer,  it  would  cause  a 
fall  in  the  value  of  gold  as  compared  with  silver  and  with 
everything  else.  In  1847,  it  had  raised  the  annual  supply  from 
all  parts  of  the  world  to  $  67,000,000,  making  it  nearly  one 
third  larger  than  it  had  been  in  1800.  But  what  was  this  to 
the  astounding  results  produced  by  the  discovery  of  the  Cali- 
fornian  and  Australian  gold  washings  ?  The  gold  obtained  in 
Australia  alone,  in  1852,  was  estimated  at  330,000  pounds 
Troy  ;  and  the  supply  from  California  that  year  is  believed  to 
have  been  252,000  pounds  Troy.  It  has  turned  out,  indeed, 
that  1852  was  far  the  most  productive  year,  and  there  has  been 
a  considerable  falling  off  since,  especially  in  Australia.  Still, 
it  is  safe  to  estimate  the  total  product  of  these  two  countries, 
in  1854,  at  350,000  pounds ;  and  if  the  supply  from  Russia 
and  other  sources  be  added,  the  aggregate  is  nearly  482,000 
pounds,  or  about  $  119,536,000.  By  a  curious  coincidence, 
the  annual  supply  of  silver  from  the  Mexican  and  South 
American  mines  has  been  largely  augmented  during  the  last 
ten  years,  the  total  for  the  whole  world  being  one  third  larger 
in  1850  than  it  was  in  1845 ;  the  aggregate  amount  mined  in 
the  former  year  was  nearly  $  44,000,000.  Putting  these  two 
34 


398  THE    DECLINE    IN    THE    VALUE    OF    MONEY. 

sums  together,  we  have  the  value  of  gold  and  silver  obtained 
from  the  mines  in  1854  equal  to  $  163,536,000.* 

The  results  now  obtained  may  be  put  into  a  tabular  form 
for  the  purposes  of  comparison. 

Annual  product  of  the 
two  precious  metals. 

From  1800  to  1810 $  49,000,000 

"     1810  to  1836 30,000,000 

1847 67,000,000 

1854 163,536,000 

The  supply  for  1854,  then,  was  five  and  a  half  times  larger 
than  the  annual  product  twenty  years  ago,  and  about  three 
and  one  third  times  larger  than  the  greatest  amount  obtained 
in  any  one  year  before  1840.  Unless  new  gold  fields  should 
be  discovered,  however,  of  which  there  seems  little  probability 
at  present,  it  is  certain  that  the  maximum  supply  was  obtained 
in  1852,  and  that  there  has  since  been  a  very  rapid  and  consid- 
erable falling  off.  While  718,000  pounds  Troy  were  obtained 
in  1852,  only  597,000  pounds  formed  the  supply  in  1853,  and 
482,000  pounds  was  the  estimate,  probably  an  exaggerated 
one,  for  1854,  the  diminution  in  two  years  being  nearly  33  per 
cent.  In  1855,  the  supply  was  probably  not  more  than  half  as 
great  as  in  1852.  The  falling  off  was  even  more  sudden  and 
marked  in  Australia  than  in  California.  In  respect  to  silver, 
on  the  other  hand,  the  supply  is  steadily  but  slowly  on  the  in- 
crease, the  most  cautious  estimates  making  the  increase  at 
least  2|  per  cent  a  year.  The  annual  product  of  this  metal  is 
now  estimated  at  very  nearly  $  50,000,000,  the  chief  portion 
of  the  increase  being  from  Mexico  and  Chili. 

The  great  difference  between  the  experiment  which  was 
tried  two  or  three  centuries  ago,  and  that  which  is  now  in 
progress,  is,  that  in  the  former  case  far  the  greater  part  of  the 
addition  which  was  made  to  the  world's  stock  of  the  precious 
metals  was  in  silver,  while  most  of  the  present  increase  is  in 
gold.  And  this  is  a  very  important  difference,  as  regards  the 

*  The  estimates  in  this  paragraph,  except  that  I  have  sometimes  used  the  nearest 
round  numbers,  are  taken  from  J.  D.  Whitney's  "  Metallic  Wealth  of  the  United 
States  described  and  compared  with  that  of  other  Countries,"  (Philadelphia,  1854,) 
a  work  which  contains  a  great  deal  of  original  information  of  much  interest,  and  a 
careful  digest  of  all  the  statistics  of  the  subject  that  could  be  gleaned  from  recent 
publications  of  good  authority  both  in  Europe  and  America. 


THE    DECLINE    IN    THE    VALUE    OF    MONET.  399 

question  of  the  probable  long  continuance  of  the  enlarged  an- 
nual product.  Silver  is  obtained  by  mining,  and  the  veins 
which  are  worked  are  most  frequently  found  to  grow  richer  as 
they  are  followed  into  the  bowels  of  the  earth.  The  expense 
of  working  them  increases  as  we  descend,  but  the  steadily  in- 
creasing product  is  generally  more  than  an  offset  for  this  en- 
larged cost.  Gold,  on  the  other  hand,  is  generally  obtained 
by  washing  from  a  superficial  deposit  of  gravel  and  sand.  It 
is  chiefly  found  in  what  the  geologists  call  "  the  drift,"  and  in 
a  stratum  of  it  of  no  great  thickness.  Being  thus  spread  out 
over  a  great  extent  of  ground,  and  lying  at  or  near  the  surface, 
almost  any  number  of  persons  can  be  engaged  in  obtaining  it 
without  impeding  each  other's  operations.  If,  also,  as  is  the 
case  in  California,  and  to  a  great  extent  in  Australia,  the  land 
in  the  auriferous  district  has  been  but  imperfectly,  or  not  at 
all,  appropriated  either  by  individuals  or  the  government,  —  if 
it  is,  in  the  main,  open  to  all  comers,  as  the  Great  Bank  is  to 
all  fishermen,  —  then,  large  as  the  district  may  be,  it  is  soon 
covered  with  gold-hunters.  The  most  promising  localities  are 
quickly  exhausted ;  and  then,  every  year,  the  labor  of  gather- 
ing the  shining  dust  will  increase,  and  the  returns  will  dimin- 
ish. The  experience  of  California  is  conclusive  on  this  point. 
There  can  be  no  doubt  that  the  whole  amount  obtained  was 
considerably  diminished  after  the  number  of  washers  was 
largely  increased.  True,  the  first  search  is  generally  imper- 
fect, and  a  second  washing  of  the  same  gravel,  with  more  care 
and  method,  may  afterwards  yield  a  fair  profit.  So,  also,  the 
solid  rock,  though  it  be  tough  quartz,  in  which  the  gold  span- 
gles now  found  in  the  drift  were  originally  imbedded,  may  be 
crushed  and  ground  by  heavy  machinery,  and  a  supply  of  au- 
riferous sand  and  gravel  be  thus  obtained  by  artificial  means, 
in  addition  to  that  which  natural  agencies  have  spread  out 
over  the  surface.  We  may  not  anticipate,  then,  that  the  gold- 
fever  will  subside  as  rapidly  as  it  rose,  or  that  the  gold-bearing 
districts  will  ever  be  completely  exhausted.  Still,  two  pro- 
cesses must  always  be  more  laborious  and  expensive  than  one, 
and  the  ground  will  no  longer  be  open  to  every  comer,  though 
he  has  no  other  capital  than  a  stout  pair  of  arms,  and  a  great 
capacity  of  enduring  fatigue.  When  the  business  is  all  re- 
duced to  pounding  up  primary  or  metamorphic  rocks  with  ma- 


400  THE    DECLINE    IN    THE    VALUE    OF    MONEY. 

chines  which  are  yet  to  be  invented,  and  to  washing  gravel  for 
the  second  time,  it  is  reasonable  to  expect,  that,  although  cap- 
italists may  get  a  fair  return  for  their  enterprise,  the  steam-ships 
will  no  longer  bring  home  gold  at  the  rate  of  three  or  four  mil- 
lions a  month. 

Taking  all  these  considerations  into  view,  together  with  the 
fact  that  we  have  now  three  great  gold-bearing  regions  to  de- 
pend upon,  so  distant  from  each  other  as  Russia,  California, 
and  Australia,  it  will  not  be  deemed  incautious  to  anticipate, 
that  the  annual  supply  of  the  two  precious  metals  will  not  fall 
below  a  hundred  millions  of  dollars  for  many  years,  and  that, 
within  a  quarter  of  a  century,  this  supply  will  depreciate  money 
to  one  half  or  one  third  of  what  was  its  value  before  1850. 

In  respect  to  the  relative  amounts  by  weight  of  the  two  pre- 
cious metals,  it  appears  from  the  statistics  already  given,  that, 
at  the  beginning  of  the  present  century,  the  annual  product  of 
gold  was  to  that  of  silver  as  1  to  43.  In  1845,  the  supply  from 
Russia  having  largely  increased  the  quantity  of  gold,  and  the 
quantity  of  silver  being  somewhat  less  than  in  1800,  the  ratio 
was  only  as  1  to  17.  In  1852,  the  supply  from  the  Californian 
and  Australian  gold-fields  having  obtained  its  maximum,  the 
ratio  of  the  two  metals  was  as  1  to  4 ;  in  other  words,  if  the 
annual  product  of  the  two  metals  had  continued  to  be  in  this 
proportion,  silver  would  have  risen  certainly  to  one  fourth,  and 
probably,  considering  the  more  extensive  use  of  the  cheaper 
metal,  to  one  half,  of  the  value  of  gold.  But  the  proportion 
has  not  been  continued  ;  the  amount  of'  gold  obtained  in  each 
year  has  rapidly  fallen  off,  while  that  of  silver  has  steadily  in- 
creased, so  that,  in  1854,  the  ratio  is  probably  as  1  to  6.  The 
following  table  exhibits  in  one  view  these  sudden  changes  in 
the  relative  quantities  of  the  two  metals,  the  figures  indicating 
the  weight  in  pounds  Troy.* 

1800.  1845.         1862.          1854. 

Silver        2,337,300        2,183,500        2,958,296        3,106,210 
Gold  54,000  129,250  717,950  482,000 

Ratio  1  to  43  1  to  17  1  to  4  1  to  6£ 

In  the  sixteenth  and  seventeenth  centuries,  while  the  Mexican 

*  In  this  table  I  have  adopted  the  estimate  of  the  well-informed  City  correspond- 
ent,  or  commercial  editor,  of  The  Times,  that  since  1850  the  annual  product  of  sil- 
ver has  been  increasing  at  the  rate,  at  least,  of  2£  per  cent  a  year. 


THE    DECLINE    IN    THE    VALUE    OF    MONEY.  401 

and  South  American  mines  were  pouring  out  their  treasures 
of  silver,  gold  rose,  from  a  comparative  value  only  ten  times 
as  great  as  that  of  silver,  to  that  which  it  had  in  1848,  of 
nearly  16  to  1.  Only  three  years  ago,  then,  it  appeared  rea- 
sonable to  believe  that  the  sudden  and  great  increase  in  the 
annual  product  of  gold,  the  annual  product  of  silver  being  then 
supposed  to  be  nearly  stationary,  would  carry  back  the  relative 
value  of  the  two  metals,  not  merely  to  its  former  point  of  10 
to  1,  but  perhaps,  as  already  mentioned,  of  4,  or  even  2,  to  1. 
It  was  even  thought,  that  the  rise  in  the  comparative  value  of 
silver  would  be  a  tolerably  exact  measure  of  the  depreciation 
of  gold.  Acting  under  this  expectation,  the  government  of 
Holland  demonetized  gold,  and  made  silver  the  standard  of 
value,  thinking  thereby  to  avoid  the  threatened  decline  in  the 
value  of  money.  But  as  the  annual  supply  of  gold  is  now 
rapidly  falling  off,  while  that  of  silver  is  steadily  increasing,* 
it  appears  probable  that  the  relative  value  of  the  two  will  not 
be  much  affected,  —  that  it  will  not  become  less  than  10  or  12 
to  1,  —  while  there  will  be  a  regular  progressive  diminution  in 
the  value  of  both.  We  cannot  expect,  then,  that  the  whole 
decline  in  the  value  of  money,  or  even  a  considerable  portion 
of  it,  will  be  indicated  by  the  variation  in  the  relative  values 
of  gold  and  silver. 

Very  good  reasons  have  been  given  why  the  discovery  of  the 


*  Humboldt  declared,  forty  years  ago,  that  the  mines  of  New  Spain  contained  sil- 
ver enough  to  deluge  the  world.  A  recent  observer,  M.  Dupont,  who  has  published 
an  excellent  work  on  the  production  of  the  precious  metals  in  Mexico,  adopts  the 
views  of  Humboldt,  and  adduces  much  additional  testimony  in  confirmation  of  them. 
He  describes  several  formations  of  rock,  in  which  silver  is  almost  sure  to  be  found, 
and  says,  that  although  these  formations  are  rare  in  the  neighborhood  of  the  city  of 
Mexico,  as  we  travel  further  northward  they  become  of  frequent  occurrence,  and, 
on  crossing  the  principal  chain  of  mountains  towards  the  Gulf  of  California,  the 
whole  western  slope  of  the  Sonora  Cordillera  is  composed  of  them.  Improved 
methods  of  mining,  also,  have  produced  great  results  in  some  of  the  old  localities, 
where  the  works  had  been  given  up  for  years,  under  the  belief  that  it  could  not  be 
continued  with  profit.  Thus  the  Frasnillo  mine,  described  in  1827  as  an  abandoned 
property,  from  which  no  hopes  could  be  entertained,  now  yields  more  than 
$2,000,000  in  silver  annually.  From  another  locality,  in  Zacatecas,  which  was 
thought  to  be  exhausted  about  1800,  there  was  extracted,  between  1827  and  1839, 
about  150  million  francs'  worth  of  silver.  If  an  efficient  government  and  a  race  of 
energetic  emigrants  should  ever  be  introduced  into  Mexico,  —  as  in  case  of  its 
probable  annexation  to  this  country,  —  a  revolution  would  take  place  in  silver  min- 
ing, and  a  fall  in  value  of  silver  would  be  inevitable. 

34* 


402  THE    DECLINE    IN    THE    VALUE    OF    MONEY. 

American  mines,  in  the  sixteenth  century,  and  the  influx  into 
the  market  of  eleven  times  as  much  of  the  precious  metals  as 
before,  did  not  reduce  their  value  in  the  same  proportion,  but 
only  in  the  ratio  of  4  to  1 ;  and  why,  when  the  ratio  of  the 
quantity  of  silver  to  that  of  gold  was  as  45  to  1,  the  ratio  of 
their  values  was  only  as  1  to  15.  It  has  already  been  observed, 
that  in  commerce  and  the  arts,  chiefly  on  account  of  its  inferior 
cost,  silver  has  been  far  more  generally  in  use  than  gold.  It 
has  supplied  much  the  larger  portion  of  the  currency  of  all  na- 
tions. With  some  nations  of  the  East,  the  Chinese  for  instance, 
gold  is  not  used  at  all  for  this  purpose.  Even  on  the  continent 
of  Europe,  silver  is,  in  many  cases,  the  only  legal  tender,  gold 
being  merely  an  article  of  merchandise,  which  is  sold  at  an  agio 
that  fluctuates  from  week  to  week,  though,  of  course,  few  peo- 
ple will  refuse  to  receive  it  in  payment.  Silver  must  always  be 
used  for  the  smaller  pieces  of  money,  at  least  until  gold  has 
fallen  much  below  its  present  value.  Our  gold  one-dollar  piece 
is  inconveniently  small,  and  will  not  probably  come  into  general 
circulation,  unless  there  should  be  some  alteration  in  its  form. 

The  general  principle  is,  that  the  value  of  money  falls  in 
precisely  the  same  ratio  in  which  its  quantity  is  increased.  If 
the  whole  money  in  circulation  should  be  doubled,  prices 
would  be  doubled ;  if  it  was  only  increased  one  fourth,  prices 
would  rise  one  fourth.  This  is  not  the  case  with  commodities 
generally,  the  value  of  which  does  not  vary  in  the  same  ratio 
with  the  excess  or  deficiency  of  the  supply ;  because  the  desire, 
being  for  the  thing  itself,  may  be  stronger  or  weaker,  and  the 
amount  of  what  people  are  willing  to  expend  upon  it,  being 
always  limited,  may  be  very  unequally  affected  by  the  diffi- 
culty or  facility  of  attainment.  But  money  is  desired  as  the 
means  of  purchasing  everything,  and  the  demand  for  it,  there- 
fore, consists  of  everything  which  people  have  to  sell. 

The  principle,  however,  even  in  the  case  of  money,  holds 
good  only  under  the  supposition  that  the  quantity  of  commod- 
ities, the  number  of  exchanges,  and  the  number  of  people  hav- 
ing occasion  to  effect  exchanges,  remain  unaltered.  Other- 
wise, if  there  be  an  increase  in  either  of  these  respects,  the 
quantity  of  money  being  unchanged,  the  value  of  that  money 
will  rise ;  or  if  money  is  increasing,  the  increase  in  these  other 
respects  may  neutralize,  wholly  or  in  part,  the  depreciation  of 


THE    DECLINE    IN    THE    VALUE    OF    MONEY.  403 

that  money.  This  was  the  case  after  the  discovery  of  Amer- 
ica. There  was  an  immense  enlargement  of  commerce  and 
manufactures  at  that  period,  and  a  great  improvement  in  the 
modes  of  living.  The  discovery  of  America  itself,  and  of  the 
passage  round  the  Cape  of  Good  Hope,  and  the  colonization 
of  the  West  by  Europeans,  greatly  enlarged  the  demand  for 
money.  Before  1500,  vastly  the  larger  portion  of  the  people 
were  engaged  in  agriculture ;  they  raised  most  of  the  articles 
which  they  needed  by  their  own  labor,  and  obtained  many 
others  by  direct  barter.  Afterwards,  many  were  diverted  into 
commercial  and  manufacturing  pursuits,  and  the  consequent 
division  of  labor  greatly  increased  the  number  of  proper  mer- 
cantile exchanges.  The  middle  classes  now  first  came  into 
notice  as  a  distinct  power  in  the  state.  As  wealth  advanced, 
luxury  grew  apace.  The  actual  consumption  of  the  precious 
metals,  by  abrasion  of  the  coin,  the  wear  of  plate,  lace,  and 
trinkets,  by  plating  and  gilding,  and  by  losses  through  ship- 
wreck or  fire,  became  considerable. 

It  is  easy  to  perceive  why,  under  such  circumstances,  the 
supply  having  become  eleven  times  as  great,  the  value  fell 
only  to  one  fourth  of  what  it  had  been.  On  the  other  hand, 
why  the  value  did  not  advance  again,  in  the  century  during 
which  the  supply  was  nearly  stationary,  though  commerce, 
wealth,  and  luxury  were  still  rapidly  increasing,  is  a  point 
which  requires  explanation.  But  as  society  advances,  means 
are  discovered  for  economizing  the  use  of  money.  The  vast 
extension  of  credit ;  the  establishment  of  banks,  and  especially 
of  Savings'  Banks,  which  bring  together  and  keep  in  active 
use  a  vast  number  of  small  sums,  which  would  otherwise  be 
hoarded  or  lie  dormant  in  the  hands  of  individuals ;  the  circu- 
lation of  bank-notes,  checks,  and  bills  of  exchange,  which  per- 
form nearly  all  the  functions  of  money ;  and,  more  than  all, 
perhaps,  the  introduction  of  accounts  current  among  traders, 
by  which  purchases  are  set  off  against  sales,  and  commodities 
are  thus  virtually  bartered  for  commodities,  money  being 
needed  only  at  the  final  settlement,  and  then  only  to  a  trifling 
amount,  —  all  are  expedients  for  completing  exchanges  with- 
out the  actual  transfer  of  coin.  Only  the  rapidly  extended  use 
of  these  expedients  could  have  prevented  a  considerable  rise  in 
the  value  of  money,  and  consequent  fall  of  prices,  between 


404  THE    DECLINE    IN    THE    VALUE    OF    MONEY. 

1810  and  1830,  when  the  annual  supply  of  the  precious  metals 
was  much  diminished,  and  the  operations  of  commerce  greatly 
enlarged. 

Is  it  probable  that  the  effect  of  the  present  vastly  increased 
supply  of  the  precious  metals  will  be,  to  any  considerable  ex- 
tent, retarded  or  neutralized  by  an  increased  demand  for 
money,  through  the  growth  of  luxury  and  trade  ?  We  see  no 
circumstances  likely  to  produce  this  result,  except  the  coloni- 
zation of  the  gold-bearing  regions  themselves ;  and  even  this 
can  have  comparatively  little  influence.  These  countries,  it  is 
true,  are  very  distant  from  the  world's  great  centres  of  com- 
merce and  wealth,  and  their  population  grows  with  marvellous 
rapidity.  In  all  distant  colonies,  and  especially  in  those 
formed  under  the  excitement  of  searching  for  gold,  the  various 
expedients  for  economizing  the  use  of  money  are  slowly  intro- 
duced and  imperfectly  developed.  Time  is  needed  to  import 
the  machinery  of  banking  and  all  the  refinements  of  trade,  and 
especially  for  the  establishment  of  confidence  in  the  commu- 
nity, so  that  large  operations  can  be  conducted  upon  credit 
For  many  years,  at  least,  California  and  Australia  must  use 
chiefly  a  hard-money  currency,  while  large  amounts  of  bullion, 
as  I  have  already  remarked,  will  be  in  transitu,  —  wandering 
about,  as  it  were,  from  one  country  to  another,  to  find  where 
they  will  be  of  most  value,  —  before  they  pass  into  active  cir- 
culation as  currency.  But  these  circumstances  can  impede 
the  result  only  for  a  few  years ;  they  cannot  materially  lessen 
or  weaken  it.  Perfect  as  the  machinery  of  trade  now  is,  and 
perfectly  as  it  is  understood,  no  country  which  is  colonized  by 
commercial  nations  can  remain  far  behind  the  mother  land  in 
the  use  of  money-saving  expedients.  In  respect  also  to  the 
use  of  the  precious  metals  for  articles  of  luxury  and  ostenta- 
tion, M.  Chevalier  finds  reason  to  believe  that  it  is  rather 
diminishing  than  increasing.  The  official  returns,  both  in 
England  and  France,  show  that  there  was  a  larger  manufacture 
of  gold  and  silver  plate  in  those  countries  before  1830  than 
there  ever  has  been  since,  if  we  except  the  last  three  or  four 
years,  during  which  time,  as  might  have  been  anticipated,  there 
has  been  a  moderate  additional  consumption  of  gold  in  the 
arts.  "  The  luxury  of  our  days,"  says  Chevalier,  "  has  demo- 
cratic features;  it  is  very  calculating  and  economical.  It  is 


THE    DECLINE    IN    THE    VALUE    OF    MONEY.  405 

lavish  of  gilding  and  silvering,  but  requires  few  massive  articles 
in  silver,  and  still  fewer  in  gold."  It  seems  most  probable, 
then,  that  the  general  principle  will  hold,  that  the  value  of 
money  will  fall  in  the  same  ratio  in  which  the  average  annual 
supply  of  it  is  increased. 

Leaving  all  these  preliminary  considerations,  then,  we  come 
to  the  main  question,  —  Is  there  anything  in  the  prospect  of  a 
great  decline  in  the  value  of  money  to  create  serious  uneasi- 
ness and  alarm  ?  We  suppose  that  the  decline  will  be  grad- 
ual, that  it  will  be  spread  over  many  years,  that  at  least  a 
quarter  of  a  century  must  elapse  before  it  can  be  completed. 
There  will  be  a  rise  in  the  prices  of  all  commodities,  with  a 
corresponding  increase  in  wages  and  salaries.  Labor  will  be 
higher  paid,  both  because  it  will  be  more  productive,  or,  in 
other  words,  the  articles  it  produces  will  have  a  greater  nomi- 
nal value,  and  because  the  cost  of  living  will  be  greater,  so 
that,  if  wages  and  salaries  did  not  rise,  the  labor  could  not  be 
had.  The  rise  of  prices  being  general,  will  consequently  be 
only  nominal ;  that  is,  one  commodity  may  be  bartered  for  an- 
other on  just  the  same  terms  as  before.  If,  when  flour  is  five 
dollars  a  barrel,  it  takes  five  barrels  of  flour  to  buy  one  coat, 
after  money  has  fallen  to  one  half  of  its  value,  the  coat  can 
still  be  had  for  five  barrels  of  flour ;  but  it  will  then  be  said  to 
be  worth  fifty  dollars,  and  the  flour  to  be  ten  dollars  a  barrel, 
instead  of  five.  In  this  narrow  view  of  the  subject,  therefore, 
or  so  far  as  this  effect  extends,  no  one  will  be  directly  bene- 
fited, and  no  one  directly  injured. 

With  respect  to  outstanding  obligations,  or  contracts  to  de- 
liver money  at  a  future  day,  the  case  will  be  different.  If  I 
borrow  one  hundred  dollars  at  a  time  when  that  sum  will  pur- 
chase twenty  barrels  of  flour,  or  an  equivalent  amount  of  other 
commodities,  and  am  not  called  upon  to  repay  it  till  money 
has  so  far  fallen  in  value  that  the  sum  will  buy  only  ten  bar- 
rels, the  debt  is  really  cancelled  by  returning  only  one  half  of 
the  value  which  was  borrowed.  To  this  extent,  therefore, 
every  one  will  be  benefited  so  far  as  he  owes  money,  and  will 
be  injured  so  far  as  he  has  money  to  receive.  But  in  either 
case,  he  will  be  affected  only  by  the  amount  of  the  deprecia- 
tion which  takes  place  in  the  interval  between  the  contraction 
of  the  debt  and  its  payment.  If  twenty-five  years  elapse  be- 


406  THE    DECLINE    IN    THE    VALUE    OF    MONEY. 

fore  the  depreciation  is  completed,  and  if  it  take  place  uni- 
formly, or  at  the  rate  of  two  or  three  per  cent  a  year,  then  all 
promises  to  pay,  which  have  not  more  than  a  year  to  run,  will 
not  be  affected  to  the  extent  of  more  than  two  or  three  per 
cent.  Now,  vastly  the  larger  number  of  contracts  that  are 
made  in  the  ordinary  course  of  business  are  completed  within 
the  year ;  they  will  not  be  so  much  affected  by  the  general  de- 
cline in  the  value  of  money  as  they  often  have  been  by  the 
common  fluctuations  of  interest,  and  by  changes  in  the  price 
of  particular  commodities.  Often,  within  the  last  ten  years, 
money  has  been  borrowed  when  the  current  rate  of  interest  did 
not  exceed  five  per  cent  a  year,  and  the  time  of  repaying  it  has 
come  when  it  could  with  difficulty  be  had  at  one  per  cent  a 
month.  We  may  say,  generally,  then,  that  all  the  common 
transactions  of  business  will  not  be  sensibly  affected  by  the 
great  change  which  is  in  prospect 

But  all  fixed  money  payments  which  are  now  contracted  for, 
and  have  many  years  to  run,  will  be  seriously  affected  by  the 
coming  alteration ;  that  portion  of  them  which  extends  over  a 
full  quarter  of  a  century,  will  experience  the  full  effect  of  it. 
All  government  stocks,  and  other  stocks  yielding  a  fixed  rate 
of  interest,  and  not  bearing  any  obligation  to  be  paid  off  in  a 
few  years ;  all  bank  stock,  and  other  permanent  investments 
of  money  yielding  income  only  under  the  form  of  interest ;  and 
all  property  let  on  long  leases  at  a  fixed  annual  rent,  must  de- 
cline in  value  with  the  money  which  they  represent.  Such 
stocks,  and  the  property  also,  if  the  lease  be  a  perpetual  one, 
when  the  depreciation  is  complete,  will  possess  only  half  their 
present  relative  value.  The  nominal  income  yielded  by  them 
will  remain  the  same,  but  it  will  only  purchase  half  as  many 
commodities  as  before.  There  will  be  no  actual  loss  to  the 
community,  for  what  one  loses,  another  gains.  The  British 
tax-payer,  for  instance,  will  profit  by  the  whole  amount  of  the 
British  fund-holders'  loss.  As  the  depreciation  goes  on,  taxa- 
tion may  be  extended  pari  passu,  without  throwing  any  addi- 
tional burden  upon  the  community;  and  a  sinking-fund, 
formed  out  of  the  surplus  thus  obtained,  would  pay  off  the  na- 
tional debt  in  less  than  one  generation.  As  such  stocks,  more- 
over, are  transferable,  and  frequently  pass  from  hand  to  hand, 
the  total  loss  upon  any  portion  of  them  will  seldom  fall  on  one 


THE    DECLINE    IN    THE    VALUE    OF    MONEY.  407 

person ;  it  will  be  divided  among  many,  and  thus  be  distribut- 
ed among  the  wealthier  portion  of  the  community,  who,  prof- 
iting in  their  capacity  as  tax-payers  by  the  depreciation  which 
occasions  this  loss,  will  have  no  great  reason  to  complain. 
Life-annuitants,  persons  who  have  insured  their  lives,  mort- 
gagees on  long  periods,  and  those  who  have  let  property  on 
permanent  or  long  leases,  will  be  almost  the  only  class  com- 
pelled to  bear  the  loss  without  any  direct  compensation  or 
means  of  escape.  The  funds  of  public  institutions  and  of  in- 
dividuals, which  exist  in  the  form  of  floating  capital,  or  what 
is  usually  called  "  money  at  interest,"  will,  of  course,  suffer  the 
full  effect  of  the  depreciation ;  but,  as  the  ownership  of  real  es- 
tate is  commonly  connected  with  the  possession  of  such  funds, 
and  as  the  value  of  real  estate  will  rise  even  in  a  higher  ratio 
than  the  prices  of  commodities,  owing  to  the  general  eagerness 
to  secure  the  only  form  of  permanent  investment  which  will 
not  be  affected  by  the  decline  in  the  value  of  money,  the  loss 
in  this  case  will  not  be  generally  without  compensation. 

The  rates  of  interest  cannot  be  directly  altered  by  the 
change.  If  gold  sinks  to  half  of  its  present  value,  the  $  100  of 
principal,  and  the  $  6  of  annual  interest  for  it,  will  be  affected 
in  precisely  the  same  ratio ;  both  sums  will  purchase  but  half 
as  much  of  any  given  commodity  as  can  now  be  obtained  for 
them.  Being  affected  in  the  same  manner,  and  to  the  same 
degree,  their  relation  to  each  other  will  remain  unaltered.  In- 
directly, however,  a  slight  diminution  in  the  rates  of  interest 
may  be  produced.  The  great  addition  to  the  stock  of  the  pre- 
cious metals  will  appear,  at  first,  in  the  form  of  floating  capi- 
tal, seeking  investment ;  it  will  swell  the  specie  reserves  of  the 
banks,  making  them  eager  to  extend  the  circulation  of  their 
notes.  Thus,  until  the  prices  of  commodities  begin  to  be  sen- 
sibly affected,  there  will  be  more  lenders  than  borrowers,  and 
money  will  be  offered  at  a  lower  interest.  It  was  so  in  1852. 
In  consequence  of  the  influx  of  gold,  the  specie  reserves  of  the 
banks  were  distended  to  repletion.  The  Bank  of  England  had 
the  enormous  sum  of  twenty-two  millions  sterling  in  its  vaults, 
or  nearly  110  millions  of  dollars,  which  is  about  double  the 
amount  that  is  usually  considered  a  safe  basis  for  its  circula- 
tion. On  the  strength  of  this  large  reserve,  its  charter  allowed 
it  to  issue  in  bank-notes  thirty-six  millions  of  pounds  sterling ; 


408  THE    DECLINE    IN    THE    VALUE    OF    MONEY. 

but  all  its  efforts  could  not  raise  the  active  circulation  over 
twenty-three  millions.  It  consequently  reduced  the  rate  of  in- 
terest, first  to  2|,  and  then  to  2,  per  cent  a  year,  —  the  lowest 
rate  at  which  it  had  ever  discounted  bills.  Consols,  moreover, 
or  government  three-per-cent  stock,  rose  to  par  and  above,  and 
the  ministry,  therefore,  formed  a  plan  for  reducing  the  rate  of 
interest  on  the  national  debt.  The  Bank  of  France,  also,  had 
specie  to  the  amount  of  120  millions  of  dollars,  or  far  more 
than  it  needed.  The  accumulation  in  our  own  Sub- Treasury, 
or  government  exchequer,  was  about  seventeen  millions ;  and 
the  coin  in  the  New  York  banks  exceeded  the  amount  of  their 
notes  in  circulation.  Supported  by  these  heavy  amounts  of 
specie  in  their  vaults,  the  banks  of  England,  France,  and 
America  might  safely  have  increased  their  issues  of  notes  to  a 
very  great  extent ;  and  they  did  endeavor  to  increase  them,  as 
otherwise  their  profits  would  have  been  much  diminished.  Ac- 
cordingly, they  pressed  more  accommodation  upon  their  cus- 
tomers, and  money  was  offered  at  very  low  rates.  Everywhere 
there  appeared  to  be  a  superfluity  of  currency,  or  of  money 
seeking  investment,  which  did  not  fail  soon  to  produce  its 
usual  results. 

It  has  already  been  said,  that  it  is  only  the  coin  in  active 
circulation  which  operates  directly  upon  prices.  What  is  in 
the  vaults  of  the  banks  is  dormant  in  this  respect,  its  office 
being  only  to  guard  the  really  active  portion  of  the  currency 
against  frequent  and  sudden  fluctuations.  The  effects  of  an 
influx  or  efflux  of  the  precious  metals  are  first  felt  on  these 
bank  reserves,  which  so  far  retard  or  deaden  the  shock,  that 
it  is  not  even  perceptible  by  the  community  at  large  till  the 
increase  or  drain  has  become  very  serious.  Then,  even  the 
banks  begin  to  feel  the  pressure.  After  an  unnatural  inflation 
of  prices  by  a  speculating  fever,  the  heavy  importations  of 
goods,  and  consequent  heavy  exportations  of  specie,  so  far 
diminish  these  specie  reserves,  which  are  the  ballast  of  the 
banks,  that  they  find  they  must  furl  sail,  or  contract  then- 
paper  issues,  if  they  would  not  be  thrown  on  their  beam-ends. 
On  the  other  hand,  an  anomalous  state  of  things,  like  that 
which  existed  in  1852,  creating  an  immense  influx  of  specie, 
they  find  their  ballast  so  much  increased,  that  the  motion  of 
the  vessel  has  become  sluggish,  and  they  cannot  force  their 


THE    DECLINE    IN    THE    VALUE    OF    MONEY.  409 

way  through  the  water  unless  they  spread  more  sail,  or  induce 
their  customers  to  borrow  a  larger  amount  of  bank-notes. 

It  may  seem  strange,  that,  as  the  spirit  of  speculation  has 
usually  been  rife  when  but  slight  temptation  was  offered,  it 
should  have  shown  itself  so  dull,  when  there  was  a  moral  cer- 
tainty that  there  would  soon  be  a  general  rise  of  prices.  But 
the  prospect  of  a  general  and  gradual  rise  of  prices  does  not 
tempt  men  into  hazardous  enterprises  so  strongly  as  the  chance 
of  a  sudden  and  great  enhancement  of  the  price  of  one  com- 
modity or  several.  The  report  of  a  war  with  China  may 
double  or  triple  the  price  of  tea  in  a  month  ;  or  a  rumor  of  the 
potato-rot  and  a  failure  of  the  crops  in  England  may  create  a 
fever  almost  at  once  in  the  flour-market  here  in  America. 
But  a  gradual  enhancement  in  the  money  value  of  all  com- 
modities does  not  quickly  induce  people  to  purchase  largely 
on  borrowed  capital.  There  may  be  brief  and  violent  fluctu- 
ations in  the  relative  value  of  particular  commodities,  while 
the  great  movement  is  silently  going  on  which  slowly  enhan- 
ces the  value  of  all.  It  is  conceivable,  and  even  probable,  that 
one  effect  of  the  abundance  of  capital  seeking  investment,  and 
the  consequent  diminution  of  the  rate  of  interest,  will  be  to 
lower  the  prices  of  many  commodities,  instead  of  raising  them, 
because  these  circumstances  aid  and  stimulate  production. 
More  cotton  will  be  spun,  because  it  will  be  more  easy  to  ob- 
tain capital  wherewith  to  build  manufactories  and  keep  them 
in  operation. 

Still,  the  loan  of  capital  could  not  be  so  generally  offered  at 
very  low  rates  of  interest  without  producing,  sooner  or  later, 
its  proper  result,  —  a  disposition  to  speculate  and  a  general  in- 
flation of  prices.  This  effect  began  to  be  manifest  towards 
the  close  of  1852,  and  became  very  conspicuous  the  following 
year.  Commodities  generally  rose  in  price,  to  the  extent,  on 
an  average,  probably  of  15  or  20  per  cent  beyond  what  was 
obtained  for  them  in  1850 ;  and  in  the  case  of  breadstuff's  and 
some  other  articles  of  provision,  a  partial  failure  of  the  crops 
in  Europe  in  1854  made  the  enhancement  of  price  much 
greater.  As  a  necessary  consequence  of  the  increased  cost  of 
living  which  was  thus  produced,  there  -was  a  general  rise  of 
wages  and  salaries,  amounting  to  at  least  15  per  cent.  These 
results  were  attended  by  considerable  speculation,  it  is  true ; 
35 


410  THE    DECLINE    IN    THE    VALUE    OF    MONEY. 

as  loans  could  be  easily  obtained,  and  there  is  always  a  strong 
temptation  to  buy  on  a  rising  market.  Thus,  the  very  lucra- 
tive trade  with  California  and  Australia,  stimulated  by  the 
extraordinary  disturbance  of  values  which  was  created  by  the 
discovery  of  the  gold  deposits  in  those  two  countries,  was  soon 
carried  to  excess,  and  a  reaction  ensued  which  ruined  many 
adventurers.  A  reaction  followed  throughout  the  United 
States  in  1854,  which  extended  to  England  and  France  the 
following  year.  Many  persons  had  traded  beyond  their  means, 
and  therefore  found  great  difficulty  in  meeting  their  engage- 
ments. The  rate  of  interest  rose  to  its  highest  point,  and 
loans  were  difficult  to  be  obtained  on  any  terms.  The  rate  of 
discount  at  the  Bank  of  England  was  fixed  at  six  per  cent  at 
the  close  of  1853,  and  seldom  fell  below  this  point  during  the 
two  following  years.  In  short,  there  were  all  the  features  of  a 
commercial  crisis,  except  a  fall  of  prices,  which  was  prevented 
by  the  steady  influx  of  gold,  diminished  in  amount,  it  is  true, 
but  still  sufficient  to  maintain  prices  and  wages  at  the  eleva- 
tion which  they  had  reached.  It  has  become  manifest,  then, 
that  this  is  a  permanent  elevation ;  having  withstood  a  gen- 
eral pressure  in  the  loan-market,  which  continued  for  an  un- 
usual period  and  with  extraordinary  severity,  there  is  no  reason 
to  believe  that  it  will  give  way  when  ease  and  prosperity  re- 
turn. No  one  expects  that  prices  will  return  to  the  level  at 
which  they  were  in  1850;  money  has  depreciated  in  value 
within  five  years  about  fifteen  or  twenty  per  cent. 

The  question  will  naturally  be  asked,  What  has  become  of 
the  large  amounts  of  gold,  which  were  deposited  in  the  banks 
of  England,  France,  and  the  United  States  in  1852  ?  The  an- 
swer is  easy ;  it  has  been  absorbed  by  this  very  rise  of  prices, 
or  depreciation  in  the  value  of  money,  assisted  in  some  degree, 
perhaps,  by  the  exigencies  of  the  war  with  Russia,  which  has 
caused  large  amounts  of  specie  to  be  transported  to  Constan- 
tinople and  the  Crimea.  If,  as  has  been  estimated,  the  whole 
amount  of  coin  circulating  in  the  commercial  world  before 
1850  was  400  millions  sterling,  and  if  prices  have  risen  gener- 
ally 20  per  cent,  480  millions  are  now  needed  to  effect  the 
same  amount  of  exchanges  as  before.  The  depreciation  has 
taken  place  because  80  millions  sterling,  or  nearly  400  millions 
of  dollars,  have  been  added  to  the  active  specie  currency  of  the 


THE    DECLINE    IN    THE    VALUE    OF    MONEY.  411 

world.  This  amount  was  first  accumulated  in  the  banks,  there 
being  no  demand  for  it  in  open  market  till  the  disposition  to 
make  purchases  was  excited,  which  at  last  produced  the  rise 
of  prices.  But  the  addition  to  the  bank  reserves,  as  we  have 
seen,  necessarily  created  this  disposition  to  buy ;  loans  being 
offered  in  large  amounts,  and  on  very  easy  terms,  the  purchases 
were  made,  prices  rose,  and  the  money  was  absorbed  into 
the  active  circulation,  instead  of  being  thrown  back  upon  the 
banks.  The  continued  influx  of  the  precious  metals  from  the 
mining  countries  prevented  prices  from  receding  again,  and  the 
depreciation  in  the  value  of  money  is  thus  established.  The 
reserve  in  the  Bank  of  England  has  now  fallen  to  less  than  half 
of  its  amount  in  1852 ;  that  in  the  Bank  of  France  has  been 
reduced  so  low  as  to  create  alarm  for  the  safety  of  the  insti- 
tution. 

The  experience  which  we  have  now  had  enables  us  to  pre- 
dict with  some  confidence  the  future  course  of  the  depreciation 
in  the  value  of  money.  It  will  not  stop  here ;  the  continued 
influx  of  at  least  100  millions  of  dollars  a  year  from  the  silver 
mines  and  gold  deposits  must  again  raise  the  prices  of  com- 
modities, within  five  or  six  years,  another  15  or  20  per  cent. 
As  farther  supplies  are  received  from  California  and  Australia, 
the  specie  reserves  of  the  banks  will  again  be  distended,  the 
rate  of  interest  will  again  be  reduced,  loans  and  discounts  will 
be  freely  offered,  and,  as  a  necessary  consequence  of  the  larger 
amount  of  money  thus  thrown  into  the  market,  prices  will  rise 
still  higher,  or,  what  is  the  same  thing,  the  value  of  money 
will  be  still  further  depreciated.  That  a  speculating  fever 
should  also  ensue,  many  persons  being  encouraged  by  this 
abundance  of  money  and  enhancement  of  price  to  make  pur- 
chases beyond  their  capital,  is  a  natural,  but  not  a  necessary, 
consequence  of  this  alteration  of  value.  It  is  evident  that  the 
change  might  take  place  by  a  steady  and  gradual  process,  each 
annual  receipt  of  the  precious  metals  from  the  mines  operating 
upon  the  market  to  raise  prices  to  an  extent  almost  too  slight 
to  be  appreciated ;  if  so,  there  would  not  be  even  a  fluctuation 
in  the  rate  of  interest  to  indicate  the  change  which  is  going 
on.  But  it  is  more  probable  that  the  revolution  will  not  be 
thus  uniform  in  its  progress,  but  that  it  will  advance,  so  to 
speak,  by  hitches  and  starts,  a  single  year  being  marked  by  a 


412  THE    DECLINE    IN    THE    VALUE    OF    MONEY. 

considerable  rise  in  prices,  which  will  be  followed  by  two  or 
three  years  of  seeming  quiescence,  and  then  another  rise  will 
ensue.  Such  has  been  our  experience  thus  far.  The  princi- 
pal effect  upon  the  market  was  produced  in  1853,  the  receipts 
from  California  and  Australia  having  reached  their  highest 
point  the  previous  year.  Since  1853,  there  has  been  no  gen- 
eral advance ;  prices  have  only  been  maintained,  —  those  of 
some  commodities  have  even  fallen  off.*  In  a  year  or  two,  we 
may  expect  another  start,  if  the  annual  supply  from  the  min- 
ing countries  should  not  be  suddenly  and  largely  diminished. 

One  reason  why  money  does  not  sink  in  value  slowly  and 
uniformly,  but  by  starts,  is  to  be  found  in  the  time  which  is 
required  for  equalizing  prices  throughout  the  world.  After 
they  have  risen  in  the  chief  commercial  countries,  such  as 
England,  France,  and  the  United  States,  the  effect  must  be 
transmitted  to  the  East,  to  British  India  and  China.  The 
price  of  opium,  tea,  silks,  and  other  Eastern  products,  must 
also  rise,  and  large  amounts  of  gold  and  silver  will  be  trans- 
mitted to  pay  for  these  commodities  at  their  enhanced  valua- 
tion. The  East  has  always  required  more  metallic  currency 
in  proportion  to  the  extent  of  her  commerce  than  the  West,  as 
it  has  fewer  banks  and  other  expedients  for  economizing  the 
use  of  money. 

It  may  be  readily  inferred,  from  what  precedes,  that,  far 
from  regarding  a  considerable  decline  in  the  value  of  money, 
when  produced  by  natural  causes,  as  a  calamity,  we  consider 
it  as  a  blessing.  It  will  greatly  alleviate  the  burden  of  taxa- 
tion in  many  states  that  are  now  oppressed  by  a  heavy  na- 
tional debt.  Private  debts,  as  well  as  public,  will  become 
easier  to  bear;  they  will  be  subject  to  a  steady  process  of 
abatement,  too  slow,  and  compensated  in  too  great  a  variety 
of  ways,  to  occasion  any  serious  loss  to  the  creditor,  and  still 
affording  a  sensible  relief  to  all  who  have  payments  to  make. 
The  greater  proportion  by  far  of  fixed  payments  are  made  by 
those  who  are  engaged  in  business  or  industrious  undertak- 
ings, to  those  who  are  enjoying  leisure  and  wealth.  Thus,  the 

*  Breadstnffs  may  be  thought  to  be  an  exception ;  bat  these  ought  not  to  be  taken 
into  account,  except  on  an  average  of  a  considerable  number  of  years.  A  very 
short  or  very  abundant  harvest  will  affect  the  price  of  flour  much  more  than  any  ad- 
vance or  decline  in  the  value  of  money. 


THE    DECLINE    IN    THE    VALUE    OF    MONEY.  413 

relief  and  the  encouragement  come  to  the  more  active  and  in- 
dustrious classes,  while  the  loss,  small  in  proportion,  falls  upon 
those  who  are  most  able  to  bear  it.  The  increasing  abundance 
of  money,  and  the  steady  rise  of  prices,  stimulate  all  forms  of 
industry  and  enterprise.  As  the  operations  of  trade  and  man- 
ufacture are  quickened,  wages  tend  to  rise  even  in  a  higher 
ratio  than  the  prices  of  commodities.  Thus  the  condition  of 
laborers  is  ameliorated,  and  the  inequality  in  the  distribution 
of  wealth,  which  is  the  great  misfortune  of  the  most  prosper- 
ous nations,  is  slowly  diminished.  Hume,  long  ago,  remarked 
that,  "  in  every  kingdom  into  which  money  begins  to  flow  in 
greater  abundance  than  formerly,  everything  takes  a  new  face ; 
labor  and  industry  gain  life,  the  merchant  becomes  more  enter- 
prising, the  manufacturer  more  diligent  and  skilful,  and  even 
the  farmer  follows  his  plough  with  greater  alacrity  and  atten- 
tion. But  when  gold  and  silver  are  diminishing,  the  work- 
man has  not  the  same  employment  from  the  manufacturer  and 
merchant,  though  he  pays  the  same  price  for  everything  in  the 
market.  The  farmer  cannot  dispose  of  his  corn  and  cattle, 
though  he  must  pay  the  same  rent  to  his  landlord.  The  pov- 
erty, beggary,  and  sloth  that  must  ensue,  are  easily  foreseen." 
Even  so  cautious  and  conservative  a  writer  as  McCulloch  fully 
admits  the  truth  of  this  view,  though  he  adds  the  obvious  and 
just  qualification,  that  the  fall  in  the  value  of  money,  which  is 
to  be  advantageous  to  a  country,  must  proceed  from  natural 
causes,  and  not  be  an  intentional  reduction  by  the  authority 
of  the  state.  Apart  from  the  obligation  to  act  with  good  faith 
and  equal  justice  to  all  classes,  which  is  incumbent  upon  every 
government,  it  is  obvious  that  any  measure,  having  this  end  in 
view,  would  occasion  a  great  shock  to  public  and  private  cred- 
it, and  cause  a  large  amount  of  capital  to  be  transported  to 
other  lands  as  to  places  of  security. 

Those  who  were  apprehensive  that  a  decline  in  the  value  of 
money,  produced  by  the  increased  supply  of  the  precious 
metals,  would  derange  the  operations  of  business,  and  destroy 
large  amounts  of  wealth,  may  console  themselves  by  remem- 
bering that  England,  France,  and  the  United  States  have,  at 
no  remote  period  of  their  history,  passed,  without  any  very  se- 
rious consequences,  through  crises  similar  in  character,  but 
more  violent  and  sudden  than  that  which  is  now  in  prospect. 
35* 


414  THE    DECLINE    IN    THE    VALUE    OF    MONEY. 

In  May,  1837,  when  all  the  banks  in  the  United  States  sus- 
pended specie  payments,  specie  rose  to  a  premium  amounting, 
on  an  average,  to  at  least  12  per  cent,  and  therefore  disap- 
peared from  the  circulation,  all  obligations  being  discharged  in 
paper,  —  that  is,  by  the  payment  of  88  cents  on  the  dollar. 
This  alteration  in  the  value  of  the  currency  was  far  more  vio- 
lent, and  more  sweeping  in  its  effects,  than  that  which  we  are 
now  experiencing.  It  was  a  depreciation  of  12  per  cent,  and 
as  it  took  place  at  once,  it  literally  affected  all  debts  which 
came  due  while  it  continued.  But  a  gradual  depreciation  of 
two  or  three  per  cent  a  year  has  scarcely  a  perceptible  influ- 
ence on  the  great  bulk  of  business  transactions,  which  involve 
obligations  to  pay  that  have  only  a  few  months  to  run.  It  is 
more  important  to  observe,  that  the  suspension  itself,  or  the  ac- 
knowledgment of  the  depreciation  of  the  currency,  which,  in 
truth,  had  already  taken  place,  was  felt  as  a  relief.  It  had 
been  preceded  by  a  period  of  advancing  prices,  great  activity 
in  commerce  and  manufactures,  and  universal  prosperity. 
These  high  prices  could  not  be  maintained,  because  the  infla- 
tion of  the  currency  had  been  unnatural,  and  was,  therefore, 
temporary.  The  suspension  came,  not  because  the  currency 
had  expanded,  but  because  it  could  not  expand  any  further,  — 
because  there  were  not  gold  and  silver  enough  to  maintain  it 
at  the  point  which  it  had  reached.  The  distress  was  caused, 
not  by  the  decline  in  the  value  of  money,  but  by  its  advance, 
—  by  the  contraction  of  prices,  and  the  restoration  of  things  to 
the  old  standard.  It  was  felt,  not  when  a  debt  of  100  dollars 
could  be  paid  off  by  88  dollars,  but  when  a  debt  contracted  by 
receiving  virtually  only  88  dollars  had  to  be  discharged  by  pay- 
ing 100.  As  no  such  reaction  or  collapse  can  follow,  when  the 
rise  of  prices  has  been  occasioned  by  a  natural  cause,  that  is, 
by  the  augmented  supply  of  the  precious  metals,  we  shall  have, 
in  the  case  before  us,  the  period  of  prosperity,  and  a  long  one 
too,  without  being  obliged  to  pay  bitterly  for  it  afterwards. 

It  was  just  so  during  the  suspension  of  specie  payments  by 
the  Bank  of  England,  that  began  in  February,  1797,  and  con- 
tinued till  1819.  The  depreciation,  which  was  very  slight  for 
a  few  years,  rose  suddenly,  in  1810,  to  13  per  cent,  and  at- 
tained  its  maximum  in  1814,  when  it  was  25  per  cent.  The 
ministry,  who  at  first  regarded  the  suspension  with  great  aim- 


THE    DECLINE    IN    THE    VALUE    OF    MONEY.  415 

ety,  came  afterwards,  it  is  said,  to  be  as  much  delighted  with 
it  as  if  they  had  found  a  mountain  of  gold.  And  well  they 
might  be  delighted.  It  was  this  depreciation  of  the  currency 
which  carried  England  triumphantly  through  the  war,  —  which 
enhanced  rents  and  profits,  gave  unprecedented  activity  to 
manufactures  and  commerce,  kept  the  laboring  population 
employed,  and  therefore  quiet,  enabled  the  government  to 
raise  enormous  loans  without  difficulty,  and  made  the  people 
bear,  with  ease  and  cheerfulness,  an  amount  of  taxation  which 
they  can  now  hardly  contemplate  without  shuddering.  "  It  is 
undeniable,"  says  a  very  well-informed  writer,  "that  during 
the  greater  part  of  that  period  (from  1793  to  1814)  the  trade 
of  the  country  was  in  a  state  of  unexampled  prosperity.  In 
no  twenty-two  years  of  our  history,  of  which  we  have  authen- 
tic accounts,  has  there  ever  been  so  rapid  an  increase  of  pro- 
duction and  consumption,  as  in  the  twenty-two  years  ending 
with  1814."  It  is  not  going  too  far  to  say,  that,  without  the 
high  prices  of  those  years,  Wellington  could  not  have  driven 
the  French  out  of  Spain,  or  triumphed  at  Waterloo.  The 
dark  hour  came,  when,  after  the  close  of  the  war,  it  was 
thought  necessary  to  take  measures  to  contract  the  currency, 
restore  the  former  value  of  money,  and  submit  to  the  conse- 
quent fall  of  prices.  "  In  whatever  degree  minor  circumstan- 
ces may  have  cooperated,  the  great  and  mighty  source  of  the 
distresses  felt  by  all  classes  of  producers  has  been  the  transi- 
tion that  took  place  at  the  termination  of  the  war,  —  the  tran- 
sition from  an  immense,  unremitting,  protracted,  effectual 
demand  for  almost  every  article  of  consumption  to  a  com- 
parative cessation  of  that  demand."  "  There  was,"  adds  Mr. 
Tooke,  "  from  1814  to  1816  (a  period  of  rapid  contraction  of 
the  currency)  a  very  general  depression  in  the  prices  of  nearly 
all  productions,  and  in  the  value  of  all  fixed  property,  entailing 
a  convergence  of  losses  and  failures  among  the  agricultural, 
and  commercial,  and  manufacturing,  and  mining,  and  ship- 
ping, and  building  interests,  which  marked  that  period  as  one 
of  most  extensive  suffering  and  distress." 

By  a  very  natural  association  of  ideas,  the  years  marked 
first  by  a  great  decline,  and  then  by  a  rapid  restoration,  of  the 
value  of  money,  come  to  be  remembered  only  as  one  period, 
or  complete  cycle,  of  great  prosperity  followed  by  still  greater 


416  THE    DECLINE    IN    THE    VALUE    OF    MONEY. 

depression  and  distress ;  and  men  naturally  shrink  from  so 
cruel  an  alternation.  They  forget  that  the  prosperity  alone  is 
consequent  on  the  depreciation  of  the  currency,  and  if  this  de- 
preciation could  continue,  or  become  permanent,  no  reaction, 
no  distress,  would  succeed.  It  was  such  a  permanent  decline 
in  the  value  of  money  which  caused  the  marvellous  develop- 
ment of  the  wealth  and  material  prosperity  of  England,  that 
took  place  during  the  reign  of  Elizabeth ;  and  it  is  to  a  decline 
equally  permanent,  and  perhaps  equally  great,  that  we  have 
now  to  look  forward.  Surely,  there  is  nothing  in  such  a  pros- 
pect to  create  agitation  and  alarm.  We  know  not  what  polit- 
ical troubles  may  grow  out  of  this  grand  monetary  revolution, 
or  that  it  will  have  any  political  effect  whatever ;  but  industry, 
commerce,  and  the  arts  have  nothing  to  fear  from  it,  but  every- 
thing to  hope. 

Coming  down  again  to  particulars,  it  was  generally  expected 
that  the  decline  in  the  value  of  money  would  be  indicated  by 
a  variation  in  the  relative  values  of  gold  and  silver,  as  the  in- 
crease in  the  annual  supply  was  thought  to  be  almost  exclu- 
sively of  the  former  metal.  Such  a  variation  would  enable  the 
legislature,  from  time  to  time,  to  determine  the  amount  of  the 
depreciation  which  has  taken  place,  and,  by  such  enactments' 
as  the  Gold  Bill  passed  in  1834,  and  the  law  enacted  by  Con- 
gress in  1853,  to  adjust  the  state  of  the  currency  to  the  new 
values  of  the  precious  metals.  But  we  have  already  shown 
that,  owing  to  the  unexpected  increase  of  the  annual  product 
of  silver,  and  the  sudden  diminution  of  that  of  gold,  the  change 
in  the  relative  value  of  the  two  metals  will  probably  be  much 
less  than  was  anticipated.  The  variation  will  indicate  in  part 
the  decline  in  the  value  of  money,  but  it  will  not  be  a  measure 
of  the  whole  depreciation.  Silver,  for  instance,  is  now  only 
two  per  cent  dearer  in  comparison  with  gold  than  it  was  in 
1848,  while  the  depreciation  in  the  value  of  both  metals,  or  of 
money  generally,  is  from  15  to  20  per  cent.  One  reason,  per- 
haps, why  the  change  in  the  proportional  value  of  the  two  has 
not  become  more  manifest,  may  be  found  in  the  change  which 
has  taken  place  in  the  currency  of  France.  The  circulation  in 
that  country  was  almost  exclusively  metallic,  as  the  only  bank- 
bills  were  of  a  very  high  denomination ;  and,  till  recently,  it 
consisted  for  the  most  part  of  silver,  gold  bearing  an  agio  of 


THE    DECLINE    IN    THE    VALUE    OF    MONEY.  41? 

about  seven  in  a  thousand,  and  therefore  not  coming  into  gen- 
eral use.  But  the  influx  of  gold  from  Australia  and  California 
has  reversed  this  state  of  things.  The  French  mint  has  coined 
a  very  large  amount  of  gold  during  the  last  five  years,  which 
has  entered  rapidly  into  circulation,  displacing  an  equivalent 
amount  of  silver  coin,  which  has  been  melted  up  and  sent 
abroad.  It  is  estimated,  by  well-informed  French  and  English 
writers,  that  the  silver  thus  set  free  in  France  alone  amounts 
to  thirty  millions  of  dollars.  To  this  was  added  for  a  time  a 
very  considerable  supply  from  this  country,  obtained  in  a  sim- 
ilar way,  —  as  we  know  that  before  the  law  was  altered,  in 
1853,  our  American  silver  coins,  of  full  weight,  had  generally 
disappeared,  then:  place,  for  purposes  of  change,  being  supplied 
by  the  worn  and  clipped  Spanish  pieces.  About  fifteen  mil- 
lions in  silver  were  thus  set  free  in  the  United  States  for  a 
year  or  two ;  but  the  new  law  of  1853  called  it  all  back  into 
circulation. 

But  any  alteration,  though  a  small  one,  in  the  relative  value 
of  the  two  precious  metals,  will  be  an  inconvenience  in  every 
country  where  there  is  a  double  standard,  or,  in  other  words, 
where  both  gold  and  silver  are  a  legal  tender  for  the  discharge 
of  debts ;  for  according  to  the  law  already  explained,  the  metal 
which  is  overvalued  in  relation  to  the  other  will  push  that 
other  out  of  circulation,  and  thus  become  the  sole  medium  of 
exchange.  A  change  must  be  made  in  the  mint  regulations, 
therefore,  as  we  cannot  do  without  silver  for  purposes  of 
"  small  change,"  and  it  would  be  inconvenient  to  do  without 
gold  in  making  large  payments.  The  question  then  arises,  — 
and  it  is  a  very  important  one,  —  how  the  alteration  in  the 
coinage  shall  be  made.  Shall  it  be  by  adding  to  the  quantity 
of  gold,  or  by  diminishing  the  quantity  of  silver,  which  now 
passes  for  a  dollar?  If  the  former  course  be  adopted,  the 
value  of  money  will  decline  only  in  proportion  to  the  depreci- 
ation of  silver,  the  greater  depreciation  in  the  value  of  gold  be- 
ing obviated  by  the  increased  quantity  of  it  which  passes  under 
the  old  denomination.  If  the  latter  course  be  preferred,  money 
will  fall  in  value  as  rapidly  as  the  worth  of  gold  is  depreciated. 
In  either  case,  several  successive  changes  of  the  mint  regula- 
tions will  be  necessary.  If,  for  instance,  gold  is  now  worth  two 
per  cent  less,  when  compared  with  silver,  than  it  was  four  or 


418  THE    DECLINE    IN    THE    VALUE    OF    MONEY. 

five  years  ago,  the  quantity  of  gold  contained  in  an  eagle  must 
be  increased  two  per  cent,  or  the  quantity  of  silver  contained 
in  a  dollar  must  be  diminished  two  per  cent.  In  either  case, 
the  relative  value  of  the  two  precious  metals  still  tending 
to  change,  the  operation  in  a  year  or  two  must  be  repeated. 
The  matter  might  be  simplified,  it  is  true,  by  giving  up  the 
double  standard,  and  using  in  future  but  one  metal  for  coin- 
age. Thus,  we  might  coin  gold  only,  and  at  the  present  rate, 
putting  232.2  grains  of  pure  gold  into  an  eagle,  or  23.22  grains 
into  a  dollar,  and  allow  silver  to  be  bought  and  sold  only  as 
bullion,  or  at  whatever  rate  it  might  command  in  the  market 
per  ounce,  Troy  weight.  Or,  gold  coins  might  be  dispensed 
with,  and  only  silver  allowed  to  circulate  as  currency,  and  at 
its  former  rate,  of  371.25  grains  to  a  dollar.  In  this  case,  as  so 
much  more  silver  would  be  needed  if  all  money  was  to  be 
composed  of  it,  its  absolute  value  would  probably  be  en- 
hanced ;  it  would  be  worth  more,  not  only  in  relation  to  gold, 
but  in  relation  to  all  other  commodities. 

The  question  which  we  are  now  considering  is  not  one  of 
mere  convenience  or  expediency ;  we  must  also  see  what  ab- 
stract justice  requires  in  all  dealings  between  debtors  and  cred- 
itors. Those  who  are  in  favor  of  increasing  the  quantity  of 
gold,  rather  than  of  lessening  the  quantity  of  silver,  which  now 
passes  for  a  dollar,  may  argue  very  plausibly,  that  a  debt 
ought  to  be  cancelled  only  by  the  payment  of  money  equal  in 
value  to  that  in  which  it  was  contracted.  If  I  have  borrowed 
one  thousand  silver  dollars,  or  something  which  could  readily 
be  exchanged  for  one  thousand  silver  dollars,  I  ought  not  to 
be  allowed  to  cancel  the  debt  by  paying  one  thousand  gold 
dollars,  after  gold  has  fallen  to  one  half  of  the  value  which  it 
had  when  I  obtained  the  loan. 

This  argument  is  plausible,  but  it  is  insufficient.  All  mer- 
cantile contracts  must  be  construed  literally,  or  must  have  a 
specific  performance.  The  law  never  undertakes  to  guard 
either  party  against  the  evil  consequences  to  himself  of  a 
change  of  values  which  he  has  not  foreseen.  Such  changes 
are  very  frequent  in  mercantile  transactions,  and  the  maxim, 
Caveat  emptor,  applies  to  them  all.  If  I  pay  one  thousand  dol- 
lars now,  for  one  hundred  barrels  of  flour  to  be  delivered  three 
months  hence,  and  if  the  price  of  flour  falls  meanwhile  to  eight 


THE    DECLINE    IN    THE    VALUE    OF    MONEY.  419 

dollars  a  barrel,  I  must  not  expect  that  one  fifth  of  the  pur- 
chase-money will  be  paid  back  to  me ;  and  if  the  price,  on  the 
other  hand,  rises  to  twelve  dollars,  the  seller  cannot  require  me 
to  make  up  the  difference.  Each  party  must  bear  the  conse- 
quences of  his  bargain,  and  of  his  own  want  of  foresight.  In 
like  manner,  if  a  landholder  leases  an  estate  for  twenty  years, 
at  an  annual  rent  of  five  hundred  dollars,  he  cannot  rightfully 
demand  compensation,  nor  can  the  lessee  ask  an  abatement, 
if,  in  the  course  of  those  twenty  years,  the  value  of  the  dollars 
should  be  altered  by  circumstances  over  which  neither  party 
had  any  control.  According  to  the  state  of  the  law  before 
1853,  when  we  suppose  the  lease  was  made,  the  annual  pay- 
ment was  to  be  either  five  hundred  times  23.22  grains  of  pure 
gold,  or  five  hundred  times  371.25  grains  of  pure  silver.  It 
was  a  part  of  the  contract,  that  the  lessee  should  have  the  op- 
tion of  paying  his  rent  in  either  of  these  forms,  the  two  metals 
in  these  proportions  being  both  legal  tender.  It  is  the  misfor- 
tune of  the  lessor,  but  certainly  not  the  fault  of  the  lessee,  if, 
when  the  rent  becomes  due,  the  23.22  grains  of  pure  gold  will 
no  longer  purchase  so  many  commodities  as  before.  The  lat- 
ter cannot,  therefore,  be  obliged  to  pay  silver ;  for  he  bargained 
to  pay  gold,  if  he  saw  fit.  If,  indeed,  the  government  should 
arbitrarily  "  raise  the  standard,"  as  it  is  termed,  or  decree  that 
the  dollar  should  in  future  contain  only  200  grains  of  pure  sil- 
ver, instead  of  371.25  grains,  then  equity,  if  not  law,  would  re- 
quire the  lessee  to  pay  his  rent  in  coins  of  the  old  standard,  or 
their  equivalent ;  for  the  spirit,  if  not  the  letter,  of  his  covenant 
is,  not  to  pay  what  may  be  called  a  dollar  at  any  future  time,  but 
what  is  really  accounted  to  be  a  dollar  at  the  time  when  the 
bargain  was  made.  It  is  but  another  application  of  the  same 
rule  of  equity  to  say,  that  he  shall  not  be  held  to  pay  40 
grains  of  pure  gold  for  a  dollar,  when  he  covenanted  to  pay 
only  23.22  grains. 

Apart  from  all  considerations  of  expediency,  then,  it  would 
be  an  obvious  violation  of  justice,  in  any  country  where  a 
double  standard  exists,  to  seek,  by  altering  the  regulations  of 
the  mint,  to  prevent  the  present  and  the  expected  depreciation 
in  the  value  of  gold  from  affecting  the  value  of  all  money  to 
the  full  extent  of  such  depreciation.  In  other  words,  it  would 
be  wrong  to  alter  the  law  on  any  other  principle  than  those  on 


420  THE    DECLINE    IN    THE    VALUE    OF    MONEY. 

which  it  was  altered  in  1853.  The  bill  on  that  occasion  was 
prepared  in  conformity  with  an  able  report  from  the  Director 
of  the  Mint,  and  it  passed  both  houses  of  Congress  by  a  large 
majority.  It  provides,  that  the  silver  half-dollar,  instead  of 
206|  grains  of  standard  silver,  one  tenth  being  alloy,  which 
was  its  former  weight,  should  contain  but  192  grams  of  such 
silver,  —  the  quarter  of  a  dollar,  dime,  and  other  silver  coins, 
being  reduced  in  the  same  proportion.  In  other  words,  the  sil- 
ver dollar  now  contains  only  345.6  grains  of  pure  silver,  instead 
of  371.25  grains,  as  formerly,  the  reduction  being  about  6.91 
per  cent.  Thus  the  ratio  of  gold  to  silver  in  our  coins,  instead 
of  being  nearly  1  to  16,  as  before,  is  now  as  1  to  14.884.  The 
former  ratio  undervalued  silver  about  two  per  cent ;  the  pres- 
ent one  overvalues  it  about  five  per  cent,  so  that  there  will  be 
no  occasion  to  make  any  further  change,  till  gold  has  fallen 
more  than  five  per  cent  below  the  present  ratio  of  its  value  to 
silver.  At  the  same  time,  to  prevent  the  new  silver  coin  from 
driving  the  gold  coin  out  of  the  currency,  the  law  provides  that 
the  new  coin  shall  be  legal  tender  only  to  the  amount  of  five 
dollars.  As  the  silver  bullion  which  can  be  purchased  for 
$  100  is  coined  at  the  mint  into  $  105,  the  law  prohibits  silver 
from  being  deposited  for  coinage  except  by  the  Treasurer  of 
the  Mint,  under  the  authority  of  the  United  States  ;  and  care 
is  taken  that  no  more  of  it  shall  be  coined  than  is  needed  for 
the  purposes  of  circulation,  as  otherwise  the  coin  might  be  de- 
preciated in  the  market  to  the  extent  of  this  five  per  cent 

The  necessity  for  passing  this  law  arose  from  the  fact,  that, 
in  1852,  gold  having  fallen  two  per  cent  below  its  relative 
value  to  silver  as  established  by  the  mint  regulations  then  in 
force,  —  that  is,  23.22  grains  of  pure  gold  having  fallen  two  per 
cent  below  the  value  of  371.25  grains  of  pure  silver,  though 
either  of  these  sums  was  legal  tender  for  a  dollar,  —  all  the  for- 
mer silver  coins  of  full  weight  had  been  melted  up  or  exported, 
and  the  public  were  thus  exposed  to  great  inconvenience  from 
the  want  of  "  small  change."  The  only  small  coins  in  circula- 
tion were  the  worn  and  defaced  Spanish  pieces,  which  had 
lost,  by  abrasion  or  clipping,  from  five  to  ten  per  cent  of  their 
nominal  value ;  and  as  there  were  not  enough  even  of  these 
for  the  purposes  of  the  currency,  it  had  become  very  difficult 
to  effect  small  purchases,  or  to  obtain  "  change "  for  a  dollar. 


THE    DECLINE    IN    THE    VALUE    OF    MONEY.  421 

A  profit  of  two  per  cent  is  enough  to  tempt  the  bullion-dealers 
to  gather  up  the  silver  coin  very  eagerly  and  send  it  abroad. 
On  every  million  of  dollars  thus  sent,  —  and  we  were  then  re- 
mitting millions  to  Europe  every  month,  —  they  made  a  gain 
of  $  20,000,  if  they  could  collect  the  sum  in  United  States  sil- 
ver coin.  Obviously,  no  gold  would  be  sent  so  long  as  silver 
coin  could  be  had ;  and  though,  since  1789,  the  mint  had 
issued  over  77  millions  of  dollars  in  such  coin,  in  less  than  six 
months  it  had  become  so  scarce  that  an  American  half-dollar 
of  full  weight  was  seldom  seen.  The  question  was  not,  then, 
whether  we  should  fall  from  a  silver  coinage  containing  371.25 
grains  of  pure  silver  in  the  dollar,  to  one  which  is  nearly  seven 
per  cent  inferior  to  it  in  value,  but  whether  we  should  rise  from 
a  worn  and  insufficient  Spanish  currency,  which  had  lost 
nearly  10  per  cent  of  its  value,  to  one  that  is  degraded  only 
about  five  per  cent.  The  new  law  did  not  by  its  own  efficacy 
debase  or  depreciate  any  kind  of  money  ;  it  only  recognized  a 
depreciation  that  had  already  taken  place,  from  natural  causes, 
over  which  human  legislation  had  no  control,  —  a  deprecia- 
tion of  gold  caused  by  the  great  increase  in  the  annual  supply 
of  that  metal,  and  a  depreciation  of  silver  money  produced,  so 
to  speak,  by  its  contact  with  the  depreciated  gold.  The  new 
law  was  a  measure  to  prevent  the  necessary  or  inevitable  de- 
cline in  the  value  of  money  from  proceeding  in  an  irregular 
manner,  or  throwing  our  currency  into  unnecessary  confusion. 
At  present,  the  government  obtains  a  considerable  profit  from 
the  manufacture  of  silver  coin ;  its  over-valuation,  amounting 
to  five  per  cent,  is  also  enough  to  prevent  it  from  being  ex- 
ported or  melted  up,  but  is  not  so  large  as  to  afford  any  temp- 
tation to  the  counterfeiter. 

The  object  of  the  new  law  was  to  introduce  into  this  coun- 
try the  system  of  coinage  which  has  been  tried  in  England  for 
over  thirty  years,  and  has  been  found  to  answer  excellently 
well,  especially  during  the  last  four  or  five  years,  when  it  has 
obviated  the  difficulty  that  would  otherwise  have  arisen  from 
the  varying  ratio  of  gold  to  silver.  The  English  system  is  ex- 
plained by  McCulloch  as  follows :  — 

"  From  1666  down  to  1817,  no  seigniorage  was  charged  on 
the  silver  coin ;  but  a  new  system  was  then  adopted.  Silver 
having  been  underrated  in  relation  to  gold  in  the  mint  propor- 
36 


422  THE    DECLINE    IN    THE    VALUE    OF    MONEY. 

tion  of  the  two  metals  fixed  in  1718,  heavy  silver  coins  were 
withdrawn  from  circulation,  and  gold  only  being  used  in  all 
the  larger  payments,  it  became,  in  effect,  what  silver  had  for- 
merly been,  the  standard  of  the  currency.  The  act  of  56th 
George  III.,  regulating  the  present  silver  coinage,  was  framed, 
not  to  interfere  with  this  arrangement,  but  so  as  to  render  sil- 
ver entirely  subsidiary  to  gold.  For  this  purpose,  it  is  made 
legal  tender  only  to  the  extent  of  40s. ;  and  665.,  instead  of 
62s.,  are  coined  out  of  a  pound  Troy,  the  4s.  being  retained  as 
a  seigniorage,  which,  therefore,  amounts  to  6^|  per  cent.  The 
power  to  issue  silver  is  vested  exclusively  in  the  hands  of  gov- 
ernment ;  who  have  it,  therefore,  in  their  power  to  avoid  throw- 
ing too  much  of  it  into  circulation,  and,  consequently,  to  pre- 
vent its  fusion,  until  the  market  price  of  silver  shall  have  risen 
to  above  5s.  Qd.  an  ounce." 

"  Under  these  regulations,"  adds  McCulloch,  in  another 
place,  "  silver  has  ceased  to  be  a  standard  of  value,  and  forms 
merely  a  subordinate  or  subsidiary  species  of  currency,  or 
change,  occupying  the  same  place  in  relation  to  gold  that  cop- 
per occupies  in  relation  to  itself.  This  system  has  been  found 
to  answer  exceedingly  well."  Our  copper  coins,  like  those  of 
England,  are  rated  about  75  per  cent  above  then:  real  value ; 
but  as  the  government  alone  determines  how  many  of  them 
shall  be  issued,  and  as  they  are  legal  tender  to  the  extent  only 
of  the  smallest  silver  coin,  this  over-valuation  is  not  productive 
of  any  bad  effect.  As  no  more  of  them  are  issued  than  are 
needed,  they  do  not  tend  to  fall  below  their  nominal  valuation, 
they  cannot  be  exported  or  melted  up  without  great  loss,  and 
the  coinage  of  them  affords  a  considerable  profit  to  the  govern- 
ment. About  $  1,300,000  worth  of  them  have  been  issued  in 
this  country,  nearly  three  fourths  of  which  sum  is  clear  profit. 

It  has  been  objected  to  the  law  of  1853,  that,  by  making 
gold  the  sole  measure  of  value,  it  will  enable  "  the  debtor  to 
pay  in  gold  perhaps  worth  only  as  one  to  ten  [in  silver],  when 
he  contracted  to  pay  worth  as  one  to  sixteen'1  But  the  mis- 
statement  here  is  obvious.  The  debtor  has  not  contracted  to 
pay  gold  which  shall  be  worth  sixteen  times  as  much  as  silver ; 
no  such  obligation  is  expressed,  none  is  implied,  in  his  con- 
tract. He  has  simply  bound  himself  to  pay  as  many  times 
23.22  grains  of  pure  gold  as  he  owes  dollars,  be  the  worth  of 


THE    DECLINE    IN    THE    VALUE    OF    MONEY.  423 

that  gold  more  or  less.  The  law  under  which  he  made  his 
contract,  and  which  still  exists,  declares  that  the  coin  contain- 
ing 23.22  grains  of  pure  gold  shall  be  legal  tender  for  a  dollar. 
Accordingly,  to  increase  the  quantity  of  gold  in  a  dollar,  —  to 
declare,  for  instance,  that  it  should  in  future  contain  30  grains, 
—  unless  the  declaration  were  accompanied  with  a  proviso  that 
all  debts  previously  contracted  might  be  discharged  by  pay- 
ment of  the  old  coin  or  its  equivalent,  would  be  to  violate  that 
clause  in  the  Constitution  which  forbids  the  passage  of  any 
law  impairing  the  obligation  of  contracts.  A  debtor  no  more 
insures  the  future  value  of  the  dollars  which  he  promises  to 
pay,  than  the  grain-dealer  insures  the  future  price  of  a  cargo  of 
flour,  which  he  sells  before  it  has  yet  come  into  port.  The 
contingency  of  a  rise  or  fall  in  the  value  of  the  article  is  what 
the  buyer  knowingly  takes  upon  himself. 

There  are  some  particular  reasons  why  a  decline  in  the 
value  of  money,  such  as  is  now  taking  place,  should  not  be  re- 
garded with  apprehension  in  this  country,  but  rather  as  a  great 
addition  to  the  future  sources  of  our  national  well-being.  As 
has  been  mentioned,  those  countries  which  have  a  large  na- 
tional debt  are  most  likely  to  be  benefited  by  the  change. 
The  burden  of  taxation  will  be  essentially  diminished,  while 
the  loss  sustained  by  the  fund-holders  will  fall  on  shoulders 
that  are  most  capable  of  bearing  it,  and  will  also  be  distrib- 
uted among  many,  and  over  a  long  period  of  years,  the  fre- 
quent changes  in  the  ownership  of  the  stocks,  moreover,  tend- 
ing to  render  their  real  depreciation  almost  imperceptible.  For 
this  reason,  the  present  revolution  in  the  monetary  world  seems 
to  be  contemplated  without  terror  in  Great  Britain ;  at  any 
rate,  no  one  hints  at  the  expediency  of  giving  up  the  present 
exclusive  gold  standard,  which  exposes  the  currency  to  the  full 
shock  of  the  alteration.  There  are  few  advocates  there  of  the 
plan  of  making  silver  the  standard,  and  gradually  increasing 
the  quantity  of  pure  metal  in  the  gold  coins.  Our  national 
debt,  it  is  true,  is  but  small,  and  what  little  there  is  will 
quickly  be  extinguished.  But  the  debts  of  the  individual 
States  are  large,  amounting  in  the  aggregate  to  over  two  hun- 
dred millions  of  dollars,  a  large  portion  of  which  is  owned  in 
Europe.  There  are  also  stocks  to  a  very  large  amount,  issued 
by  cities,  railroads,  and  other  corporations,  in  which  English 


424  EFFECT    OF    SPECULATION    ON    PRICES  : 

capitalists  have  made  large  investments;  while  there  are  no 
foreign  stocks  owned  in  this  country.  The  rate  of  interest 
being  higher  here  than  in  the  Old  World,  European  capital 
has  been  attracted  here  in  so  large  quantities,  that  our  annual 
remittances  for  interest  already  constitute  no  small  portion  of 
our  exports.  We  do  not  call  these  remittances  "  a  drain  upon 
the  resources  of  the  country,"  as  they  are  often  denominated 
by  the  unthinking;  for  the  transactions  on  which  they  are 
founded  have  swelled  those  resources  far  beyond  the  limit 
which  would  otherwise  have  bounded  them.  Still,  it  is  satis- 
factory to  remember,  that,  as  the  monetary  revolution  will  op- 
erate exclusively  to  the  benefit  of  the  indebted  party,  our  own 
land  will  derive  as  much  benefit  from  it,  in  proportion  to  our 
means,  as  any  other  country  on  earth. 


CHAPTER    XXIII. 

EFFECT     OF     SPECULATION     UPON     PRICES. THE    THEORY    OF    A 

COMMERCIAL    CRISIS. 

HAVING  considered  at  length  the  nature  and  uses  of  money, 
we  are  now  prepared  to  explain  the  adjustment  of  prices  in 
the  market,  and  especially  the  causes  of  fluctuations  of  price. 
The  price  of  a  thing  may  be  defined  to  be  its  present  market 
value,  or  temporary  exchangeable  power  reckoned  in  money. 
Its  permanent  or  natural  exchangeable  value,  as  I  have  already 
shown,  depends  on  the  cost  of  its  production,  and  is  the  pivot 
about  which  the  price,  or  immediate  market  value,  is  perpetu- 
ally oscillating,  never  departing  from  it  far,  or  for  any  consid- 
erable length  of  time,  in  either  direction.  If  the  price  falls 
below  the  cost,  a  smaller  quantity  of  the  article  will  be  pro- 
duced, and  therefore  the  price  will  soon  begin  to  rise ;  if  it 
considerably  exceeds  the  cost,  production  will  be  stimulated, 
more  of  the  article  will  be  offered  in  the  market,  and  then  the 
price  will  fall. 

The  general  principle  is,  that  the  price  so  adjusts  itself  that 


A    COMMERCIAL    CRISIS.  425 

I 

the  demand  shall  be  just  equal  to  the  supply.  If  the  supply 
be  too  great  for  the  present  demand,  if  the  market  be  over- 
stocked with  the  article,  a  fall  of  price  must  ensue,  and  this 
diminished  price  will  bring  the  commodity  within  the  means 
of  a  larger  class  of  consumers ;  that  is,  the  demand  for  it  will 
be  increased  enough  to  take  off  the  quantity  which  was  a  drug 
in  the  market  at  the  higher  price.  For  instance,  when  flour  is 
ten  dollars  a  barrel,  it  is  beyond  the  means  of  a  large  class  in 
the  community,  who  will  then  be  obliged  to  live  on  corn-meal 
and  potatoes.  We  will  suppose  that  600,000  barrels  of  flour 
can  be  disposed  of  at  this  price,  because  this  quantity  will  sat- 
isfy the  wants  of  all  who  are  able  to  pay  ten  dollars  a  barrel. 
But  if  the  price  should  fall  to  five  dollars,  the  poorer  class  can 
purchase  flour,  and  a  million  of  barrels  may  consequently  be 
disposed  of.  On  the  other  hand,  if  the  supply  should  not  be 
equal  to  the  demand,  —  if  only  500,000  barrels  should  be 
brought  to  market,  —  the  competition  of  the  buyers  with  each 
other  will  cause  the  price  to  rise  (say)  from  ten  to  twelve  dol- 
lars ;  and  this  enhancement  of  price  will  lessen  the  number  of 
those  who  are  able  to  purchase,  so  that  now  only  half  a  million 
of  barrels  are  required.  Thus  the  fluctuations  of  price  are  the 
means  through  which  the  demand  is  always  made  just  equal 
to  the  supply. 

But  there  is  one  remarkable  exception  to  the  principle,  that 
cheapening  the  price  will  increase  the  demand,  or  augment  the 
number  of  consumers.  It  is  not  true  that  purchasers  will  al- 
ways buy  what  they  can  buy  cheapest.  If  the  pursuit  of 
wealth,  or,  what  is  the  same  thing,  the  desire  to  make  savings, 
were  always  the  ruling  motive,  the  principle  would  hold  good. 
But  it  is  not  so  ;  in  many  instances,  the  ruling  motive  is,  noto- 
riously, not  the  love  of  gain,  but  the  love  of  display.  Through 
the  rivalry  of  individuals  in  the  display  of  wealth,  some  arti- 
cles are  prized  only  on  account  of  their  high  cost.  Cheapen 
them,  and  the  demand  will  not  be  enlarged,  but  diminished, 
for  the  consumption  of  them  will  then  be  abandoned  by  this 
class  of  persons,  who  will  immediately  seek  out  other  and 
more  costly  articles  with  which  to  gratify  their  love  of  osten- 
tation. Render  them  very  cheap,  and  they  will  go  out  of  use 
altogether.  If  pearls  were  as  common  as  oysters,  pearl  brace- 
lets and  brooches  would  never  be  manufactured.  If  equally 
36* 


426  EFFECT    OF    SPECULATION    ON    PRICES  : 

serviceable  articles  of  intrinsically  higher  cost  cannot  be  found, 
the  aid  of  that  capricious  goddess,  Fashion,  will  be  called  in 
to  create  a  factitious  enhancement  of  the  price  of  certain  com- 
modities. The  demand  for  these  commodities  is  then  in- 
creased by  the  addition  to  their  price ;  when  cheap,  they  were 
neglected ;  when  they  have  become  scarce  and  high  in  price, 
they  are  eagerly  sought  after,  and  persons  even  of  moderate 
means  will  submit  to  considerable  sacrifices  in  order  to  obtain 
them.  And  the  cases  are  neither  few  nor  unimportant,  in 
which  the  rule  is  thus  inverted.  Most  of  the  finer  manufac- 
tures of  cotton,  wool,  and  silk,  together  with  fine  cutlery,  ex- 
pensive pieces  of  furniture,  and  nearly  all  the  fancy  articles 
which  become  articles  of  desire  because  they  are  fashionable, 
belong  to  this  class.  Lower  their  price,  and  the  demand  for 
them  is  diminished. 

What  Political  Economists  term  the  demand,  consists  of  two 
elements,  —  the  ability  to  purchase,  and  the  desire  for  the  thing 
itself,  or  the  disposition  to  purchase.  These  two  must  coexist 
in  order  to  constitute  an  effectual  demand,  and  thus  affect  the 
price.  In  the  case  of  the  poorer  classes,  including  persons  of 
moderate  means,  it  is  the  want  of  the  former  element,  the  abil- 
ity, which  limits  the  demand.  In  this  case,  then,  lower  the 
price,  and  the  consumption  is  increased.  But  for  people  of 
wealth,  it  is  the  lack  of  the  second  element,  the  desire  or  dis- 
position, which  restricts  the  demand ;  to  diminish  the  price 
will  not  increase  their  consumption  of  the  commodity,  but  in 
most  cases  will  lessen  it,  as  the  possession  of  the  article  will 
no  longer  be  a  token  of  wealth. 

The  price  is  usually  said  to  vary  in  inverse  ratio  with  the 
supply,  or  to  diminish  as  the  supply  increases,  and  vice  versa. 
But  not  all  the  commodity  which  is  in  being,  not  all  even  of 
that  portion  of  it  which  is  intended  sooner  or  later  to  be  sold, 
constitutes  what  is  properly  termed  the  supply.  This  term  is 
restricted  to  that  portion  of  the  article  which  is  already  in  the 
market,  or  is  now  offered  for  sale.  The  quantity  which  is  held 
in  store  by  speculators,  awaiting  an  expected  rise  of  price,  has 
no  more  effect  on  the  present  market,  than  the  quantity  which 
is  already  purchased  and  held  in  store  only  for  consumption ; 
as  when  the  government  has  purchased  sufficient  stores  for  the 
army  six  months  in  advance. 


A    COMMERCIAL    CRISIS.  427 

And  even  in  reference  to  what  is  now  offered  for  sale,  it 
should  be  observed  that  the  price  does  not  vary  in  the  same 
ratio  with  the  deficiency  or  excess  of  supply.  This  depends 
upon  the  nature  of  the  commodity,  or  rather  upon  the  nature 
of  the  desire  to  possess  it,  —  whether  it  be  a  natural  and  im- 
perative want,  or  only  an  artificial  one.  If  the  article  be  a 
mere  luxury,  or  desired  only  for  purposes  of  ostentation,  a  de- 
ficiency of  one  third  in  the  amount  offered  for  sale  will  not 
make  the  price  one  third  larger ;  rather  than  purchase  it  at  a 
cost  so  much  enhanced,  many  persons  will  do  without  it  alto- 
gether. If  the  annual  supply  of  diamonds  from  the  mines 
were  reduced  one  half,  it  is  not  probable  that  the  price  of  them 
would  be  doubled,  or  even  that  it  would  be  materially  in- 
creased ;  as  they  are  of  little  use  except  for  purposes  of  dis- 
play, persons  would  gratify  their  ostentatious  feelings  by  pur- 
chasing some  other  commodity  at  a  price  nearly  equivalent  to 
what  they  formerly  paid  for  diamonds.  Large  pearls,  or  other 
gems  of  high  cost,  would  answer  just  as  well.  On  the  other 
hand,  if  the  article  is  a  necessary  of  life,  so  that  people  will 
submit  to  any  sacrifice  rather  than  resign  it,  and  especially  if 
it  be  of  such  a  nature  that  an  apprehended  scarcity  of  it  oper- 
ates strongly  on  the  fears  of  the  multitude,  a  deficiency  of  one 
third  may  double,  triple,  or  quadruple  the  price.  "  The  price 
of  corn  in  England,"  says  Mr.  Tooke,  "has  risen  from  one 
hundred  to  two  hundred  per  cent,  when  the  utmost  computed 
deficiency  of  the  crops  has  not  been  more  than  between  one 
sixth  and  one  third  below  an  average,  and  when  that  defi- 
ciency has  been  relieved  by  foreign  supplies." 

To  what  point,  then,  will  the  enhancement  of  price  in  either 
case  —  whether  of  luxuries  or  necessaries  —  be  carried  ?  "  To 
that  point,"  says  Mr.  Mill,  "whatever  it  be,,  which  equalizes 
the  demand  and  supply ;  —  to  the  price  which  cuts  off  the  extra 
third  from  the  demand,  or  brings  forward  additional  sellers  suf- 
ficient to  supply  it."  It  appears,  also,  contrary  to  what  might 
have  been  anticipated,  that  articles  of  high  cost,  and  therefore 
in  comparatively  limited  demand,  are  most  steady  in  price; 
while  those  of  prime  necessity  and  in  general  use,  such  as 
breadstuffs  and  other  provisions,  are  liable  to  sudden  and  vio- 
lent fluctuations. 

The  influence  of  mercantile  speculations  on  price  has  been 


428  EFFECT    OF    SPECULATION    ON    PRICES  I 

well  explained  by  McCulloch.  "  It  rarely  happens,"  he  says, 
"  that  either  the  actual  supply  of  any  species  of  produce  in 
extensive  demand,  or  the  intensity  of  that  demand,  can  be 
exactly  measured.  Every  transaction  in  which  produce  is 
bought  that  it  may  be  afterwards  sold,  is,  in  fact,  a  specula- 
tion. The  buyer  anticipates  that  the  demand  for  the  article 
he  has  purchased  will  be  such,  at  some  future  period,  either 
more  or  less  distant,"  or  at  some  other  place,  either  in  the  same 
country  or  across  sea,  "  that  he  will  be  able  to  dispose  of  it  at 
a  profit ;  and  the  success  of  the  speculation  depends,  it  is  evi- 
dent, on  the  skill  with  which  he  has  estimated  the  circum- 
stances that  will  determine  the  future  price  of  the  commodity. 
It  follows,  therefore,  that  in  all  highly  commercial  countries, 
where  merchants  are  possessed  of  large  capitals,  and  where 
they  are  left  to  be  guided  in  the  use  of  them  by  their  own  dis- 
cretion and  foresight,  the  prices  of  commodities  will  frequently 
be  very  much  influenced,  not  merely  by  the  actual  occurrence 
of  changes  in  the  accustomed  relation  of  the  supply  and  de- 
mand, but  by  the  anticipation  of  such  changes.  It  is  the  busi- 
ness of  the  merchant  to  acquaint  himself  with  every  circum- 
stance affecting  the  particular  description  of  commodities  in 
which  he  deals.  He  endeavors  to  obtain,  by  means  of  an  ex- 
tensive correspondence,  the  earliest  and  most  authentic  infor- 
mation with  respect  to  everything  that  may  affect  their  supply 
or  demand,  or  the  cost  of  their  production ;  and  if  he  learned 
that  the  supply  of  an  article  had  failed,  or  that,  owing  to 
changes  of  fashion  or  to  the  opening  of  new  channels  of  com 
merce,  the  demand  for  it  had  been  increased,  he  would  most 
likely  be  disposed  to  become  a  buyer,  in  anticipation  of  profit- 
ing by  the  rise  of  price,  which,  under  the  circumstances,  could 
hardly  fail  of  taking  place  ;  or  if  he  were  a  holder  of  the  arti- 
cle, he  would  refuse  to  part  with  it  unless  for  a  higher  price 
than  he  would  previously  have  accepted.  If  the  intelligence 
received  by  the  merchant  were  of  a  contrary  description,  —  if, 
for  example,  he  learned  that  the  article  was  now  produced  with 
greater  facility,  or  that  there  was  a  falling  off  in  the  demand 
for  it,  caused  by  a  change  of  fashion,  or  by  the  shutting  up  of 
some  of  the  markets  to  which  it  had  previously  been  admitted, 
— he  would  act  differently;  in  this  case,  he  would  anticipate  a 
fall  of  prices,  and  would  either  decline  purchasing  the  article, 


A    COMMERCIAL    CRISIS.  429 

except  at  a  reduced  rate,  or  endeavor  to  get  rid  of  it,  suppos- 
ing him  to  be  a  holder,  by  offering  it  at  a  lower  price.  In  con- 
sequence of  these  operations,  the  prices  of  commodities,  in 
different  places  and  periods,  are  brought  comparatively  near  to 
equality.  All  abrupt  transitions,  from  scarcity  to  abundance, 
and  from  abundance  to  scarcity,  are  avoided ;  an  excess  in  one 
case  is  made  to  balance  a  deficiency  in  another,  and  the  sup- 
ply is  distributed  with  a  degree  of  steadiness  and  regularity 
that  could  hardly  have  been  deemed  attainable."  * 

All  commerce,  then,  may  be  said  to  consist  in  speculation, 
if  we  leave  out  of  view  those  operations  which  are  more  prop- 
erly regarded  as  subsidiary  to  commerce  than  as  forming  a 
part  of  it ;  such  as  the  actual  transportation  of  commodities 
from  one  place  to  another,  and  breaking  bulk,  or  selling  by 
retail  for  the  greater  convenience  of  consumers.  The  rest  is 
only  buying  or  selling  with  a  view  to  profit  from  an  expected 
change  of  price ;  and  the  success  of  the  dealer  will  depend 
upon  the  correctness  of  his  anticipations.  Speculation,  then, 
as  McCulloch  remarks,  "is  only  another  name  for  foresight." 
It  plays  an  important  part  in  those  beneficent  arrangements  of 
Providence  through  which  the  cupidity  and  selfishness  of  indi- 
viduals are  made  to  minister  to  the  general  good.  To  recur 
to  an  instance  already  cited,  it  is  through  the  speculations  of 
private  merchants  that  the  inhabitants  of  a  great  metropolis 
are  supplied  with  food  and  all  other  necessaries  of  life,  without 
wastefulness  and  yet  without  stint,  each  family  receiving  every 
day  just  what  it  wants,  and  as  much  as  it  wants,  and  being 
admonished  through  the  price  to  limit  or  economize  its  con- 
sumption of  any  one  article,  whenever  a  failure  in  the  harvest 
or  other  mode  of  supply,  or  even  the  prospect  of  a  failure,  ren- 
ders such  economy  essential. 

The  common  prejudice  against  speculation  arises,  first,  from 
confounding  it  with  gambling,  to  which  we  must  admit  that 
it  is  very  nearly  allied,  as  the  two  operations  run  into  one  an- 
other by  imperceptible  degrees.  A  stock-jobber,  for  instance, 
agrees  to  purchase  at  a  future  day  a  particular  amount  of  gov- 
ernment stock  at  a  certain  price,  expecting  that  the  market 
price  will  rise  before  the  day  comes,  so  that  he  will  make  a 


*  McCalloch's  Principles  of  Political  Economy,  4th  ed.,  pp.  336,  337. 


430  EFFECT    OF    SPECULATION    ON    PRICES  : 

profit  by  the  bargain ;  the  jobber  who  contracts  to  sell  him  the 
stock  at  that  time,  and  on  those  terms,  expects  that  the  market 
price  will  fall  in  the  mean  time.  But  the  party  who  agrees  to 
sell  has  really  no  stock  to  dispose  of,  and  he  who  agrees  to 
purchase  does  not  expect  to  receive  the  stock,  but  only  to  re- 
ceive or  pay,  on  the  day  appointed,  the  difference  between  the 
actual  market  price  and  the  price  agreed  upon.  Obviously, 
this  is  only  betting  upon  the  rise  or  fall  of  stocks  within  a 
given  period,  and  is  therefore  properly  denounced  as  "  gambling 
in  the  stocks."  On  the  other  hand,  a  flour-merchant  agrees 
to  purchase,  at  a  fixed  price,  a  cargo  of  flour  which  has  not  yet 
arrived  in  port,  because  he  has  been  led  to  believe  that  the 
price  will  rise,  while  the  person  who  sells  it  to  him  expects  it 
will  fall ;  and  this  is  admitted  to  be  fair  speculation,  or  a  legit- 
imate operation  of  trade. 

How  can  these  two  cases  be  distinguished  in  principle,  so  as 
to  prove  that  the  one  is  censurable  and  the  other  praiseworthy  ? 
McCulloch  says,  "  That  may  be  termed  a  gambling  adventure 
in  ivhich  the  contingencies  are  unknown,  or  in  which  they  are 
nearly  equal" ;  for  instance,  if  a  bet  is  to  be  decided  by  a 
throw  of  dice,  it  is  gambling,  because  the  utmost  sagacity  can- 
not determine  how  the  dice  will  turn  up.  But  if  a  flour-mer- 
chant contracts  to  purchase  or  deliver  flour  at  a  future  day,  he 
relies  upon  the  information  which  he  has  obtained  respecting 
the  amount  of  the  crops,  and  the  probable  extent  of  the  de- 
mand, and  his  action,  as  it  is  thus  based  upon  calculation  and 
foresight,  is  a  fair  exercise  of  skill  in  trade. 

It  would  seem  to  follow,  then,  that  if  one  of  the  betters 
knew  beforehand  that  the  dice  were  loaded,  and  could  thus 
anticipate  how  they  would  turn  up,  he  would  not  be  a  gam- 
bler, but  an  honest  man.  But  the  common  sense  of  mankind 
decides  directly  the  other  way.  It  may  be  said,  indeed,  that 
the  criminality  here  consists  in  the  deception,  the  one  party 
using  information,  or  having  knowledge  of  facts,  which  the 
other  party  was  not  aware  of.  But  then  the  flour-merchant 
often  acts  in  the  same  manner,  as  he  may  have  ascertained 
some  circumstances  which  will  probably  affect  the  future  price 
of  grain,  and  he  bases  his  action  upon  this  knowledge,  care- 
fully concealing  the  facts  from  the  person  whom  he  deals 
with ;  and  however  such  conduct  may  be  viewed  by  strict 


A    COMMERCIAL   CRISIS.  431 

moralists,  it  is  sanctioned  by  the  almost  universal  custom  of 
merchants,  and  is  regarded  as  a  fair  exercise  of  activity  in  get- 
ting early  information,  and  of  sagacity  in  profiting  by  it. 

Speculation  can  be  accurately  distinguished  from  gambling, 
as  it  seems  to  me,  only  by  taking  into  account  the  different 
motives  and  intentions  of  the  parties.  The  gambler,  acting 
from  the  love  of  excitement  almost  as  much  as  from  the  thirst 
for  gain,  makes  bets,  or  forms  contracts  which  amount  to  bets, 
with  reference  to  the  doctrine  of  chances  only,  having  no  re- 
gard to  the  effect  which  his  transaction  will  have  upon  mar- 
kets by  equalizing  prices  and  supplies.  The  upright  merchant, 
excluding  as  far  as  possible  all  consideration  of  mere  chance, 
forms  no  bargain  if  his  calculations  do  not  assure  him  that  it 
must  lead  to  a  favorable  result,  barring  only  all  unforeseen 
contingencies ;  his  transactions  are  all  real,  or  based  upon  the 
actual  transfer  of  merchandise,  with  reference  to  the  effect  of 
such  transfer  upon  the  markets  in  removing  a  surplus  from 
one  time  or  place,  and  supplying  a  deficiency  in  another.  Ac- 
cidents that  could  not  be  foreseen  may  falsify  his  calculations, 
and  bring  failure  and  loss ;  but  he  engages  in  no  enterprise 
that  bears  hazard  upon  its  face,  regarding  this  as  the  province 
of  the  gambler.  Failure,  therefore,  always  takes  him  by  sur- 
prise, and  he  shuns  danger,  while  the  other  courts  it,  or  delib- 
erately weighs  the  probability  of  loss  against  that  of  gain. 

Another  prejudice  against  legitimate  speculation  in  trade 
has  arisen  from  its  supposed  effects  in  creating  an  unnecessary 
enhancement  of  price,  to  the  detriment  of  the  consumers. 
This  is  a  mistake ;  the  speculator  cannot  raise  prices  unneces- 
sarily, without  injuring  himself  more  than  those  who  buy  of 
him.  To  prove  that  he  cannot,  I  will  take  the  strongest  case, 
and  one  in  which  he  is  most  frequently  exposed  to  popular 
odium,  the  grain  and  flour  trade.  It  is  for  the  interest  of  the 
community  that  each  crop  should  be  distributed  equally 
throughout  the  country  and  throughout  the  year.  The  busi- 
ness of  the  grain-merchant  is  to  equalize  the  supplies,  and  the 
more  equal  and  perfect  that  he  makes  this  distribution,  the 
larger  is  his  profit.  His  interest,  then,  even  in  years  of  the 
greatest  scarcity,  is  exactly  coincident  with  that  of  the  con- 
sumers. If  the  deficiency  be  very  great,  he  sends  to  foreign 
countries  for  an  additional  supply,  and  thus  contributes  effect- 


432  EFFECT    OF    SPECULATION    ON    PRICES  I 

ually  to  lower  the  price.  If  the  harvest,  on  the  other  hand,  has 
been  unusually  abundant,  he  exports  a  portion  of  the  surplus, 
and  thus  prevents  injury  and  discouragement  to  the  agricultur- 
ists from  the  price  falling  too  low,  and  guards  the  people 
against  the  formation  of  wasteful  and  improvident  habits  in 
consuming  a  cheap  commodity.  True,  if  he  has  a  large  stock 
on  hand  when  the  scarcity  begins  to  be  felt,  he  makes  im- 
mense profits  from  the  rise  in  price ;  and  he  sometimes  holds 
back  his  stock  in  expectation  of  a  further  rise,  though  mean- 
while the  poorer  classes  are  actually  suffering  from  hunger. 
But  in  so  doing,  as  Adam  Smith  remarks,  he  only  treats  the 
people  in  the  same  manner  as  the  prudent  master  of  a  vessel 
often  treats  his  crew.  "  When  he  foresees  that  provisions  are 
likely  to  run  short,  he  puts  them  upon  short  allowance. 
Though,  from  excess  of  caution,  he  should  sometimes  do  this 
without  any  real  necessity,  yet  all  the  inconveniences  which 
his  crew  can  thereby  suffer  are  inconsiderable,  in  comparison 
of  the  danger,  misery,  and  ruin  to  which  they  might  sometimes 
be  exposed  by  a  less  provident  conduct.  If  he  raises  the  price 
unnecessarily  high,  he  becomes  himself  the  greatest  sufferer,  as 
he  runs  the  risk  of  losing  a  portion  of  his  stock,  by  the  natural 
decay  of  so  perishable  a  material,  and  of  being  obliged  to  sell 
what  remains  of  it  at  a  much  lower  price  than  he  might  have 
obtained  some  months  before.  The  profit  which  he  makes 
when  the  price  unexpectedly  rises  from  a  failure  of  the  crops, 
is  only  a  fair  compensation  for  the  loss  which  he  must  suffer 
when  the  price  unexpectedly  falls.  The  average  rate  of  profit 
cannot  be  higher  in  this  trade  than  in  any  other,  as  the  busi- 
ness is  free  to  all,  and  as  competition  brings  profits  every- 
where to  a  level." 

In  fine,  says  Mr.  Buchanan,  « those  who  still  imagine  that 
corn  is  artificially  raised  in  price,  would  do  well  to  consider, 
that,  as  the  supply  of  provisions  is  liable  to  great  variations, 
there  must  be  some  provision  in  the  economy  of  nature  for 
making  a  smaller  supply  last  as  long  as  a  larger  supply ;  that 
there  is  no  way  of  thus  regulating  the  consumption  but  by  the 
price ;  and  that  it  is,  accordingly,  in  reference  to  this  great 
object  that  the  price  is  invariably  fixed.  It  neither  can  be 
lowered  nor  increased,  but  for  the  sake  of  more  exactly  suiting 
the  daily  and  weekly  waste  to  the  supply  of  the  year.  If  we 


A    COMMERCIAL    CRISIS.  433 

suppose,  for  example,  that  the  supply  falls  in  one  year  one 
twelfth  below  the  level  of  an  average  crop,  (which  we  know 
frequently  happens,)  it  would,  if  consumption  were  to  go  on 
at  the  ordinary  rate,  be  consumed  in  the  course  of  eleven 
months,  leaving  the  last  month  wholly  unprovided  for.  But 
this,  we  know,  never  happens,  and  it  is  only  prevented  by  a 
rise  of  price,  which  measures  the  consumption  by  the  defi- 
ciency of  the  crop ;  and  whether,  therefore,  there  is  an  abun- 
dant, middling,  or  scarce  crop,  a  suitable  allowance  is  sure  to 
be  measured  out  to  the  consumer  by  a  low,  a  middling,  or  a 
high  price.  The  corn-dealer,  indeed,  thinks  nothing  about  all 
this  ;  his  object  is  to  sell  his  commodity  at  the  highest  price ; 
and  in  a  scarcity,  he  takes  his  full  advantage ;  but  while  he  is 
thinking  only  of  himself,  while  he  is  only  playing  his  own  pal- 
try game,  he  is  a  mere  instrument  in  the  hands  of  Him  who 
brings  good  out  of  evil,  and  who  turns  the  little  passions  of 
man  to  the  purposes  of  His  own  benevolence  and  wisdom. 
There  is  really  nothing  in  nature  more  wonderful  than  that 
great  law  of  society  by  which  subsistence  is  measured  out  in 
due  proportion  to  the  supply  of  the  year ;  and  the  more  deeply 
it  is  considered,  the  more  worthy  will  it  appear  of  profound 
and  rational  admiration." 

It  is  not  denied,  that  in  the  corn-trade,  as  in  other  branches 
of  commerce,  prices  are  sometimes  raised  or  lowered  unneces- 
sarily by  the  operations  of  speculators,  who  have  been  misled 
by  wrong  reports,  or  have  erred  in  their  estimates  of  the  effects 
which  would  be  produced  on  the  market  by  political  changes, 
the  breaking  out  of  a  war,  new  inventions  and  discoveries,  or 
the  stoppage  of  some  sources  of  supply.  Merchants  as  well 
as  other  persons  are  sometimes  mistaken  in  their  calculations. 
But  the  mistakes  thus  committed  soon  correct  themselves ; 
they  are  usually  of  small  extent  and  short  duration,  and  they 
injure  none  so  much  as  those  who  make  them.  When  the 
error  is  discovered,  the  market  experiences  a  revulsion,  and 
prices  for  a  time  are  depressed  as  much  below  their  proper 
level  as  they  were  formerly,  without  due  cause,  elevated 
above  it,  so  that  the  average  result  to  the  consumers  is  the 
same  as  if  no  disturbance  had  happened.  When  war  was  ex- 
pected between  England  and  China,  in  1839,  it  was  believed 
that  the  supply  of  tea  would  be  almost  entirely  cut  off;  the 
37 


434  EFFECT    OF    SPECULATION    ON    PRICES  '. 

whole  supply  in  the  market  was  therefore  eagerly  bought  up 
by  dealers  and  speculators,  and  prices  advanced  100  per  cent 
and  upwards.  But  in  less  than  three  months,  it  was  ascer- 
tained that  the  supply,  by  means  of  indirect  shipments,  cargoes 
being  transhipped  from  American  and  Dutch  to  English  ves- 
sels, would  probably  be  as  large  as  ever,  while  the  consump- 
tion had  been  much  diminished  by  the  high  price.  There  was, 
consequently,  a  violent  reaction  in  the  market,  consumers  ob- 
tained their  tea  cheaper  than  ever,  and  most  of  the  speculators 
became  bankrupts ;  they  had  injured  nobody  but  themselves. 

Such  a  speculative  movement  as  this,  affecting  the  price  of 
only  one  commodity,  can  seldom  be  of  much  importance  to 
the  whole  body  of  consumers,  or  the  community  at  large.  In 
fact,  there  is  but  one  article,  wheat  and  the  flour  which  is 
made  of  it,  the  consumption  of  which  is  so  vast,  on  account  of 
its  being  in  universal  use,  that  any  enhancement  of  its  price, 
not  connected  with  a  general  rise  of  prices,  is  a  matter  of  na- 
tional concern.  But  in  this  case,  fortunately,  the  sources  of 
supply  are  as  numerous  as  the  consumption  is  great ;  and 
owing  to  the  differences  of  soil  and  climate,  an  unusually  poor 
harvest  in  one  district  or  country  is  usually  offset  by  an  un- 
usually good  one  in  another.  In  1847,  there  was  a  more  gen- 
eral failure  of  the  crops  in  Western  Europe  than  had  been 
known  for  many  years ;  but  the  harvest  in  the  United  States 
was  abundant,  and  the  unavoidable  enhancement  of  price,  as 
already  explained,  having  limited  the  consumption,  the  aggre- 
gate supply  for  the  whole  world  was  sufficient  for  the  aggre- 
gate demand.  On  account  of  the  immense  quantity  of  wheat 
and  flour  that  is  constantly  in  the  market,  speculation  has  a 
comparatively  limited  effect  upon  its  price.  "  Not  only  its 
value,"  says  Adam  Smith,  "  far  exceeds  what  the  capitals  of  a 
few  private  men  are  capable  of  purchasing,  but,  supposing  they 
were  capable  of  purchasing  it,  the  manner  in  which  it  is  pro- 
duced renders  this  purchase  altogether  impracticable."  It  is 
produced  all  over  the  country,  and  is  necessarily  divided  at 
first  among  an  immense  number  of  owners,  some  of  whom 
supply  the  consumption  in  their  immediate  neighborhood, 
while  others  send  their  produce  to  distant  markets.  "  The  in- 
land dealers  in  corn,  therefore,  including  the  farmer  and  the 
baker,  are  necessarily  more  numerous  than  the  dealers  in  any 


A    COMMERCIAL    CRISIS.  435 

other  commodity,  and  their  dispersed  situation  renders  it  alto- 
gether impossible  for  them  to  enter  into  any  general  combina- 
tion. If  in  a  year  of  scarcity,  therefore,  any  of  them  should 
find  that  he  had  a  good  deal  more  of  corn  upon  hand  than,  at 
the  current  price,  he  could  hope  to  dispose  of  before  the  end  of 
the  season,  he  would  never  think  of  keeping  up  this  price  to  his 
own  loss,  and  to  the  sole  benefit  of  his  rivals  and  competitors, 
but  would  immediately  lower  it  in  order  to  get  rid  of  his  corn 
before  the  new  crop  began  to  come  in.  The  same  motives, 
the  same  interests,  which  would  thus  regulate  the  conduct  of 
any  one  dealer,  would  regulate  that  of  every  other,  and  oblige 
them  all  in  general  to  sell  their  corn  at  the  price  which,  accord- 
ing to  the  best  of  their  judgment,  was  most  suitable  to  the 
scarcity  or  plenty  of  the  season."  * 

But  apart  from  those  mistakes  of  speculators  which  affect 
the  price  of  only  one  or  two  articles,  experience  tells  us  that 
far  more  general  errors  are  sometimes  committed ;  that  a  fever 
of  speculation  appears  at  times  to  seize  upon  the  whole  mer- 
cantile community,  producing  for  a  while  an  unnatural  infla- 
tion of  the  prices  of  nearly  all  commodities,  and  then,  with  a 
sudden  reaction,  carrying  them  back  to  a  point  much  below 
their  former  average,  and  thus  causing  general  distress,  loss  of 
confidence,  and  bankruptcy.  These  violent  changes  from  a 
period  of  great  activity  and  seeming  prosperity  of  trade,  to  one 
of  marked  depression  of  prices,  stagnation  in  business,  and 
general  inability  to  meet  pecuniary  engagements,  are  called 
commercial  or  monetary  crises,  and  are  among  the  most  strik- 
ing phenomena  in  the  history  of  commerce.  The  state  of 
trade,  says  Lord  Overstone,  (formerly  Mr.  Jones  Loyd,)  "re- 
volves apparently  in  an  established  cycle.  First,  we  find  it  in 
a  state  of  quiescence,  —  next  improvement,  —  growing  confi- 
dence, —  prosperity,  —  excitement,  —  over-trading,  —  convul- 
sion, —  pressure,  —  stagnation,  —  distress,  —  ending  again  in 
quiescence."  Experience  does  not  seem  to  teach  caution,  or 
instruct  merchants  and  speculators  how  to  avoid  a  recurrence 
of  the  evil.  These  crises  are  not  of  infrequent  occurrence. 
Both  in  England  and  the  United  States,  they  come  round,  on 
an  average,  about  once  in  every  seven  or  eight  years.  Sir 

*  Wealth  of  Nations,  p.  234. 


436  EFFECT    OF    SPECULATION    ON    PRICES: 

Robert  Peel,  speaking  in  1844,  says  :  "  Within  the  last  twenty 
years,  there  have  been,  I  think,  four  such  periods,  —  in  1825, 
in  1832,  in  1835-36,  and  in  1838-39."  Since  the  date  of 
his  speech,  there  have  been  two  others,  —  in  1847,  and  in  1855. 
In  the  United  States,  there  was  a  very  violent  monetary  crisis 
in  1837,  when  all  the  banks  in  the  country  suspended  specie 
payments.  Another  followed  in  1841,  when  there  was  a  par- 
tial suspension  by  the  banks,  and  a  third  in  1854. 

When  it  is  expected  that  circumstances  will  cause  some 
commodity  to  rise  in  price,  dealers  in  it  enlarge  their  pur- 
chases, in  order  to  profit  by  the  alteration  ;  and  these  additional 
purchases  tend  to  increase  the  effect  to  which  they  have  refer- 
ence, or  to  raise  the  price  still  higher.  Other  speculators  are 
then  attracted  into  the  business,  and  their  operations  cause  a 
further  advance.  The  price  thus  obtains  an  unnatural  eleva- 
tion, much  above  what  would  have  been  produced  by  the  cir- 
cumstances which  first  tended  to  raise  it;  and  those  who  have 
accumulated  a  large  stock  of  the  commodity  now  become  anx- 
ious to  sell.  This  is  the  turning  of  the  tide  ;  the  price  ceases 
to  advance,  and  even  begins  to  decline.  The  holders  rush  into 
the  market  to  avoid  further  loss,  and  their  eagerness  to  sell  car- 
ries down  the  price  more  rapidly  than  it  rose.  The  lessons  of 
experience  are  of  little  use  under  such  circumstances;  for 
though  it  be  generally  perceived  that  the  rise  is  merely  specu- 
lative, and  the  reaction  be  foreseen,  each  dealer  still  wishes  to 
hold  back  till  the  advance  has  reached  its  maximum,  and  to 
sell  only  when  the  decline  is  about  to  begin.  A  few  succeed 
in  choosing  the  right  moment  for  disposing  of  their  stock ;  but 
the  sanguine  wait  for  the  tide  to  rise  still  higher,  and  are 
caught  by  the  suddenness  of  the  revulsion.  A  concurrence  of 
circumstances  may  affect  the  price  of  several  commodities  at 
once ;  and  then,  partly  from  sympathy,  partly  from  the  excite- 
ment produced  by  seeing  great  fortunes  quickly  accumulated 
by  the  few  who  made  large  purchases  at  the  right  moment,  the 
rise  becomes  general,  and  a  fever  for  buying  and  selling  almost 
any  article  appears  to  pervade  the  whole  community.  Many 
of  those  who  press  so  eagerly  into  the  market  when  any  new 
channel  of  commerce  is  opened,  or  when  any  considerable  rise 
of  price  is  anticipated,  are  not  merchants,  but  persons  engaged 
in  other  business,  or  living  perhaps  on  fixed  incomes,  who 


A    COMMERCIAL    CRISIS.  437 

speculate  in  the  hope  of  suddenly  increasing  their  fortune. 
"  In  speculation,  as  in  most  other  things,"  says  McCulloch, 
"  one  individual  derives  confidence  from  another.  Such  a  one 
purchases  or  sells,  not  because  he  has  any  peculiar  or  accurate 
information  in  regard  to  the  state  of  the  demand  and  supply, 
but  because  some  one  else  has  done  so  before  him."  The  in- 
terference of  persons  not  experienced  in  business  tends,  of 
course,  to  fan  the  excitement,  and,  when  the  recoil  comes,  to 
render  the  catastrophe  more  general  and  more  ruinous. 

Two  opposite  theories  prevail  respecting  the  nature  and 
causes  of  a  commercial  crisis.  The  first  attributes  nearly  the 
whole  evil  to  an  unnecessary  expansion  of  the  currency,  caused 
by  the  mismanagement  of  the  banks,  and  undertakes  to  find 
a  preventive  or  a  remedy  by  placing  very  heavy  restrictions 
upon  the  issue  of  bank-notes.  The  other  regards  the  banks  as 
necessarily  passive  in  the  matter,  as  they  have  nothing  to  do 
with  buying  or  selling  commodities,  and  finds  the  character- 
istic feature  of  the  phenomenon  in  a  great  extension  of  the 
system  of  credit,  which  cannot  be  prevented  by  legislation, 
and  which  might  take  place,  and,  in  fact,  often  has  taken 
place,  in  countries  where  only  a  metallic  currency  was  in  use. 
The  one  party  maintains  that  an  expansion  of  the  currency 
always  precedes  a  commercial  crisis,  and  that  it  is  this  expan- 
sion which  produces  the  rise  of  prices ;  the  other  affirms  that 
it  is  the  rise  of  prices  which  produces  what  there  is  of  an  ex- 
pansion, but  that  this  increase  of  the  currency,  at  the  most,  is 
inconsiderable  ;  —  that  it  is  one  of  the  attendant  circumstances 
or  consequences  of  the  crisis,  but  is  not  its  cause.  Their  doc- 
trine is,  that  prices  rise  first,  and  that  there  is  a  slight  increase 
of  the  circulation  some  time  afterwards. 

I  have  already  endeavored  at  some  length  to  prove,  that  a 
convertible  paper  currency  cannot  be  issued  in  excess ;  that  the 
whole  amount  of  money  needed  by  the  country  is  a  fixed 
quantity,  and  it  is  not  in  the  power  of  the  banks,  however  dis- 
posed they  may  be  to  do  so,  to  make  any  direct  addition  to 
the  aggregate  of  notes  circulating  in  their  respective  dis- 
tricts. I  shah1  now  proceed  to  show  that  an  expansion  of 
the  currency  cannot  produce  the  fever  of  speculation  and  the 
unnatural  rise  of  prices  which  lead  inevitably  to  a  commercial 
crisis. 

37* 


438  EFFECT    OF    SPECULATION    ON    PRICES  ! 

The  currency  theory  is  really  founded  upon  the  old  error,  so 
difficult  to  be  entirely  exploded,  which  confounds  all  wealth, 
and  especially  all  capital,  with  money;  which  regards  every 
debtor  as  a  person  who  has  borrowed  money,  and  every  cred- 
itor as  an  owner  of  money  which  is  temporarily  in  the  posses- 
sion of  another ;  and  which  therefore  considers  any  excess  in 
the  contraction  of  debts  as  resulting  from  the  abundance  of 
money,  and  any  general  difficulty  in  the  payment  of  debts  as 
arising  from  the  scarcity  of  money.  The  theory  may  be  con- 
futed, then,  by  a  recurrence  to  first  principles,  which  teach  us, 
that  what  any  person  borrows  is  really  not  money,  but  the 
merchandise  which  he  purchases  with  money;  that  what  he 
pays  is,  in  truth,  only  a  certificate  of  the  ownership  of  property, 
which  is  made  over  or  transferred  to  his  creditor ;  and  that  any 
general  difficulty  in  the  payment  of  debts  arises  from  the  fact, 
that  many  persons  have  contracted  to  deliver  property  at  a 
future  day,  and  have  been  deceived  in  their  expectations  of 
obtaining  the  property  in  season  to  fulfil  their  engagements. 
Money  plays  a  very  insignificant  part  in  the  whole  circle  of 
these  transactions,  being,  in  truth,  only  a  means  of  effecting 
these  transfers  of  property  with  somewhat  greater  facility ;  all 
the  transactions  might  take  place,  though  in  an  awkward  and 
clumsy  way,  not  only  if  the  currency  were  exclusively  metallic, 
but  if  there  were  no  money  whatever  in  circulation,  so  that  all 
commerce  should  be  reduced  to  barter.  The  same  specific 
sum  of  money  —  that  is,  the  same  coins  or  bills  —  may  be 
used  to  effect  several  payments  in  the  same  day ;  and  if  there 
was  not  money  enough  in  the  country  to  perform  this  office 
quickly  and  conveniently,  the  deficiency  might,  in  great  part, 
be  made  up  by  causing  what  money  there  was  to  do  more 
work  in  a  given  time,  or  to  effect,  on  an  average,  six  instead 
of  three  payments  a  day ;  in  other  words,  greater  quickness  of 
circulation  might  be  made  to  compensate  for  any  deficiency  in 
amount.  The  office  of  money,  then,  in  facilitating  the  ex- 
change of  merchandise  and  other  values,  is  precisely  analogous 
to  that  of  carts  and  horses  in  effecting  the  transportation  of 
merchandise.  It  would  be  absurd  to  affirm,  that  a  superabun- 
dance of  the  means  of  transportation  tempted  merchants  to 
transport  more  commodities  than  were  needed,  or  that,  in  the 
present  advanced  state  of  the  arts,  there  could  be  any  serious 


A    COMMERCIAL,    CRISIS.  439 

difficulty  in  fulfilling  contracts  for  the  delivery  of  merchandise 
arising  from  a  want  of  carts  and  horses. 

The  doctrine  which  attributes  all  the  evils  of  excessive  spec- 
ulation to  the  mismanagement,  or  excessive  issues,  of  the 
banks,  may  be  all  summed  up  in  the  oft-repeated  assertion, 
that  "it  is  only  the  money  in  circulation  that  affects  prices."* 
Now  it  is  certain  and  obvious,  that  the  power  of  making  ex- 
travagant purchases,  and  thereby  enhancing  prices  and  con- 
tributing to  bring  about  a  commercial  crisis,  does  not  at  all 
depend  upon  the  quantity  of  money,  whether  coin  or  bank- 
notes, that  is  in  circulation.  It  might  be  exercised,  as  I  have 
already  said,  to  any  extent,  though  the  currency  were  exclu- 
sively metallic,  and  even  though  there  were  no  currency,  so 
that  all  debts  should  be  contracted,  and  all  payments  made,  in 
kind,  or  by  the  delivery  of  specified  amounts  of  particular  mer- 
chandise.f  An  individual  may  purchase  by  giving  in  ex- 
change either  his  own  notes,  or  bank-notes ;  that  is,  he  may 
buy  with  his  own  promises  to  pay,  or  with  the  bank's  promises 
to  pay.  The  former  promises  may  be  issued  in  great  excess ; 
there  is,  in  fact,  no  limit  to  their  amount.  The  latter  cannot 
be  issued  in  excess.  There  is  a  check  —  an  instantaneous 
and  decisive  check  —  on  the  issue  of  bank-notes ;  specie  or 
actual  value  may  be  demanded  for  them  at  any  time  at  the 
bank  counter;  and  such  a  demand  is  a  certain  consequence 

*  Currency  or  Money ;  its  Nature  and  Uses,  and  the  Effects  of  the  Circulation  of 
Bank-Notes  for  Currency,  by  a  Merchant  of  Boston.  1855.  p.  60.  This  pamphlet 
contains  a  clear  and  able  statement  of  the  currency  theory,  by  one  of  its  most  ear- 
nest advocates. 

t  Of  course,  when  there  is  a  currency,  whether  paper  or  metallic,  it  is  not  denied 
that,  if  the  amount  of  that  currency  can  be  increased,  prices  will  rise  as  a  consequence 
of  such  augmentation.  My  only  points  are,  first,  that  bank  or  convertible  currency 
cannot  be  issued  in  excess,  and,  secondly,  that  an  increase  of  the  currency  is  not  the 
only  means  of  affecting  prices,  for  prices  might  be  raised,  as  is  asserted  in  the  text, 
though  there  were  no  circulation.  A  metallic  currency  can  be  augmented,  as  Cali- 
fornia and  Australia  have  already  taught  us,  and  prices  have  risen  in  consequence. 
So,  also,  paper  money  properly  so  called,  or  inconvertible  paper  currency,  can  be  is- 
sued in  great  excess,  and  prices  rise  enormously  in  consequence,  as  is  proved  in  a 
preceding  chapter.  The  great  mistake  of  the  currency  doctors  consists  in  obsti- 
nately confounding  bank  currency  with  paper  money,  though  hardly  any  two  things 
can  be  more  unlike.  Thus,  in  the  pamphlet  just  cited,  by  "a  Merchant  of  Bos- 
ton," the  instances  given  to  prove  that  bank  currency  may  be  issued  in  excess  are 
the  paper  roubles  of  Russia,  the  Continental  money  of  the  American  Revolution, 
and  the  circulation  of  the  Bank  of  England  from  1797  to  1819,  —  all  being  instances 
of  paper  money. 


440  EFFECT    OF    SPECULATION    ON    PRICES  : 

even  of  a  slight  excess  in  the  issue.  There  is  no  check  on  the 
excessive  issue  of  the  notes  of  any  private  person,  because  they 
are  given  on  time,  —  for  six  months,  a  year,  or  more.  Specie 
cannot  instantly  be  demanded  for  them. 

Over-trading,  or  excessive  speculation,  arises  from  an  abuse 
of  the  purchasing  power,  which  every  man  possesses  in  a 
greater  or  less  degree.  "  The  amount  of  purchasing  power 
which  a  person  can  exercise,"  says  Mr.  Mill,  "  is  composed  of 
all  the  money  in  his  possession,  or  due  to  him,  and  of  all  his 
credit.  He  is  tempted  to  exercise  the  whole  of  this  power 
only  under  peculiar  circumstances;  but  he  always  possesses 
it ;  and  the  portion  of  it  at  any  time  which  he  does  exercise  is 
the  measure  of  the  effect  which  he  produces  on  prices."  In 
fine,  credit  as  much  exceeds  currency  in  its  influence  on  prices, 
as  the  number  of  purchases  on  credit  exceeds  the  number  of 
purchases  for  cash ;  and  in  the  dealings  of  merchants  with 
each  other,  every  one  knows  that  this  ratio  is  at  least  as  one 
hundred  to  one.  Under  ordinary  circumstances,  most  traders 
find  no  difficulty  in  extending  their  credit,  so  far  as  the  pur- 
chase of  goods  is  concerned,  to  any  extent  that  they  may  think 
desirable.  They  may  not  be  able  to  borrow  or  hire  capital 
directly,  but  they  can  purchase  merchandise  on  credit,  as  it  is 
termed,  with  no  other  check  than  their  own  judgment  of  what 
is  honest  and  safe.  Even  in  England,  where  a  far  more  rigid 
rule  of  credit  is  applied  than  in  the  United  States,  Mr.  Tooke 
says,  "  a  person  having  the  reputation  of  capital  enough  for  his 
regular  business,  and  enjoying  good  credit  in  his  trade,  if  he 
takes  a  sanguine  view  of  the  prospect  of  a  rise  of  price  in  the 
article  in  which  he  deals,  and  is  favored  by  circumstances  in 
the  outset  and  progress  of  his  speculation,  may  effect  purchases 
to  an  extent  perfectly  enormous  compared  with  his  capital. 
The  conditions  requisite  are,  that  the  market  should  be  a  large 
one,  and  the  article  susceptible  of  great  fluctuation  of  price 
from  political  or  physical  causes ;  and  in  fact,  it  is  only  articles 
of  this  description  that  are  the  subject  of  speculations  suffi- 
ciently extensive  to  attract  notice."  Thus,  when  the  difficul- 
ties with  China,  in  1839,  produced  a  speculation  in  tea,  one 
dealer  was  known,  "who,  having  a  capital  not  exceeding 
£  1,200,  which  was  locked  up  in  his  business,  had  contrived 
to  buy  4,000  chests,  value  above  £  80,000 " ;  and  this  waa 


A    COMMERCIAL    CRISIS.  441 

done  without  the  outlay  of  actual  capital  or  currency  in  any 
shape.  Another  example  given  is  that  of  an  operation  in  the 
grain  market  between  1838  and  1842.  "  There  was  an  in- 
stance of  a  person  who,  when  he  entered  on  his  extensive  spec- 
ulations, was,  as  it  appeared  by  the  subsequent  examination  of 
his  affairs,  possessed  of  a  capital  not  exceeding  £  5,000,  but 
being  successful  in  the  outset,  and  favored  by  circumstances  in 
the  progress  of  his  operations,  he  contrived  to  make  purchases 
to  such  an  extent,  that,  when  he  stopped  payment,  his  engage- 
ments were  found  to  amount "  to  over  half  a  million  sterling. 
These  are  English  examples ;  I  need  not  quote  American 
ones,  as  the  memory  of  any  of  our  merchants  will  supply  in- 
stances quite  as  striking  as  any  that  have  been  mentioned. 

But  to  this  doctrine,  that  credit  may  be  indefinitely  extended 
without  any  expansion  of  the  currency,  it  may  be  objected, 
that  credit  is  necessarily  limited  by  the  amount  of  disposable 
capital  in  the  country ;  for  no  more  capital  can  be  borrowed 
than  there  is  capital  to  lend.  Exactly  so  ;  but  then  the  instan- 
ces given  are,  nominally,  not  loans,  but  purchases  ;  and  conse- 
quently, the  limit  to  them  is,  not  the  amount  of  capital  which 
is  seeking  a  borrower,  only  interest  being  expended  for  it,  but 
the  amount  of  merchandise  which  is  seeking  a  purchaser,  and 
on  which  profits  are  expected.  To  buy  on  credit  is  only  to 
borrow  on  the  hard  condition  of  paying  for  the  sum  borrowed, 
not  merely  the  rate  of  interest,  which  is  but  six  per  cent,  but 
the  rate  of  profit,  which  equals  at  least  ten  or  twelve  per  cent. 
Hence  a  merchant  who  would  immediately  refuse  to  lend  a 
brother  merchant  $  5,000  on  interest  for  six  months,  will  very 
readily  sell  him  $  50,000  worth  of  goods  on  six  months'  credit. 
Thus  there  is  literally  no  limit  to  the  expansion  of  credit ;  the 
whole  amount  of  merchandise  offered  for  sale,  both  in  this 
country  and  in  foreign  lands,  may  be  sold  on  credit,  under  the 
temptation  of  the  high  prices,  and  consequent  expectations  of 
large  profits,  which  are  caused  by  a  speculating  fever ;  and  hav- 
ing been  sold  once  in  this  manner,  the  purchasers  may  then 
sell  them  again  to  another  set  of  speculators,  and  again,  till 
their  value  is  indefinitely  multiplied.  What  a  mountain  of 
indebtedness  may  thus  be  created,  without  the  intervention,  at 
least  before  some  months  have  elapsed,  of  one  dollar  of  cur- 
rency, or  even  any  demand  upon  the  banks  for  additional 


442  EFFECT    OF    SPECULATION    ON    PRICES  : 

loans !  Large  importations  are  only  one  mode  of  obtaining 
credit,  or  "  borrowing  money,"  as  it  is  termed ;  and  commercial 
crises  are  oftener  produced  by  them  than  by  any  other  means. 
Here  in  the  United  States,  there  is  a  peculiar  fund  for 
speculation,  and  a  means  of  creating  fictitious  values  to  any 
extent,  without  any  alteration,  for  the  time,  of  the  quantity 
or  value  of  money.  I  refer  to  the  sale  of  the  public  lands 
by  the  national  government.  Up  to  June,  1853,  about  235 
millions  of  acres  of  these  lands  had  been  sold,  or  granted  away 
for  schools,  military  bounties,  and  internal  improvements;  and 
there  remained  about  as  much  more  to  be  disposed  of,  exclu- 
sive of  the  immense  regions  comprised  within  the  limits  of 
Oregon,  California,  Utah,  New  Mexico,  Kanzas,  and  Nebraska, 
As  the  great  tide  of  emigration  constantly  rolls  westward,  these 
lands  assume  value  according  as  the  region  in  which  they  are 
situated  promises  to  become  more  or  less  populous.  I  have  al- 
ready explained,  in  treating  of  the  theory  of  rent,  that  the  value 
of  the  lands  is  determined  by  the  distribution  of  the  popula- 
tion ;  and  this  distribution  is  determined  either  by  nature  or 
the  works  of  man,  according  as  one  spot  is  more  fertile,  more 
salubrious,  better  supplied  with  water  and  timber,  or  better  sit- 
uated with  reference  to  navigable  streams,  railroads,  and  great 
lines  of  communication  between  different  districts.  Obviously, 
there  is  great  room  for  the  exercise  of  sagacity  and  foresight  in 
determining  how  soon  and  how  quickly  any  particular  district 
will  be  peopled,  or  for  enterprise  in  executing  the  public  works 
which  will  draw  emigrants  thither.  There  are  numerous  in- 
stances in  which  a  populous  village  or  city  has  sprung  up  within 
ten  years  upon  lands  which,  at  the  beginning  of  that  period,  were 
unoccupied  forest  or  prairie,  and  could  be  obtained  at  th£  gov- 
ernment price  of  $  1.25  an  acre.  Reckoned  as  village  or  town 
lots,  this  land  may  be  worth  one  or  two  thousand  dollars  an 
acre.  Here,  then,  in  the  possibility  of  buying  land  in  the  wil- 
derness at  a  merely  nominal  price  by  the  acre,  and  selling  it 
within  a  few  years  at  a  high  valuation  by  the  square  foot,  is 
an  unbounded  and  most  attractive  field  for  speculation ;  and 
the  records  of  the  Land-Office  show  how  far  it  has  been  carried. 
Between  1840  and  1850,  the  average  number  of  acres  sold  by 
the  government  each  year  was  less  than  two  millions ;  and 
even  this  probably  exceeded  what  was  actually  required  for 


A    COMMERCIAL    CRISIS.  443 

the  increase  of  the  population.  But  in  1835,  twelve  millions, 
and  in  1836,  over  twenty  millions,  were  thus  disposed  of.  At 
what  average  price  the  purchasers  from  the  government  either 
sold,  or  expected  to  sell,  the  land  to  those  who  were  to  buy  of 
them,  it  were  vain  to  conjecture.  But  if  they  anticipated  only 
a  tenfold  return,  which  is  a  very  low  estimate,  it  follows  that 
their  operations,  during  the  two  years,  created  speculative  or 
fictitious  values  amounting  to  320  millions  of  dollars.  In 
1854-5,  in  consequence  of  the  rapid  extension  of  railroads  at 
the  West,  and  the  large  grants  of  land  by  Congress  in  aid  of 
these  improvements  and  for  military  bounties,  these  specula- 
tions have  been  renewed  and  extended  even  to  a  greater 
amount  than  before ;  and  owing  to  the  decline  in  the  value  of 
money,  and  to  the  almost  incredible  amount  of  the  immigra- 
tion from  Europe,  it  is  probable  that  the  expectations  of  the 
speculators  have  been  in  a  great  measure  fulfilled. 

All  these  immense  operations  might  have  been  carried  on 
without  creating  any  perceptible  increase  of  the  circulation. 
The  government,  indeed,  sold  land  only  for  cash ;  but  then  its 
price  was  very  low,  and  most  of  the  land  was  not  purchased 
of  it,  but  received  as  a  gift,  in  grants  for  the  extension  of  rail- 
roads and  in  bounties  ;  and  the  grantees  and  original  purchas- 
ers sold  again  on  long  credit,  receiving  their  pay  in  annual 
instalments  distributed  over  so  many  years  as  not  to  occasion 
at  any  one  time  any  pressure  upon  the  loan  market.  In  respect 
even  to  the  amounts  received  from  the  government  sales,  it 
may  be  observed,  that,  as  they  fell  very  far  short  of  the  aggre- 
gate annual  expenditure  by  the  government,  they  might  have 
been  all  defrayed  or  offset  by  the  payments  due  to  public  con- 
tractors and  for  military  and  naval  services,  without  occasion- 
ing the  transfer  of  a  single  dollar  in  coin  or  bank-bills.  In  fact, 
many  payments  for  land  were  thus  made  by  drafts  upon  the 
Sub- Treasury  which  had  been  issued  in  the  ordinary  course  of 
government  expenditure. 

Enough  has  been  said  to  demonstrate  the  possibility  of  spec- 
ulative purchases  being  made  to  any  extent,  and  of  prices  being 
consequently  enhanced  to  the  highest  point  which  they  have 
ever  attained  before  a  commercial  crisis,  without  any  percepti- 
ble expansion  of  the  currency.  Sufficient  evidence  may  be  cited 
to  prove,  also,  not  only  that  this  is  the  possible  operation  of 


444  EFFECT    OF    SPECULATION    ON    PRICES: 

the  market,  but  that  it  has  been  the  actual  result.  The  opin- 
ion prevails  very  generally,  both  in  England  and  this  country, 
that  the  amount  of  the  circulation  is  very  much  increased 
when  a  speculative  fever  is  at  its  height,  and  that  prices  rise 
only  in  consequence  of  this  increase ;  but  nothing  can  be  fur- 
ther from  the  truth.  "  It  may  help  us  to  form  some  judgment 
on  this  point,"  says  Mr.  Mill,  "  if  we  consider  the  proportion 
which  the  utmost  increase  of  bank-notes  in  a  period  of  specu- 
lation bears,  I  do  not  say  to  the  whole  mass  of  credit  in  the 
country,  but  to  the  bills  of  exchange  alone.*  The  average 
amount  of  bills  in  existence  at  any  one  time  is  supposed  con- 
siderably to  exceed  a  hundred  millions  sterling.  The  bank- 
note circulation  of  Great  Britain  and  Ireland  is  less  than  thirty- 
five  millions,  and  the  increase  in  speculative  periods  at  most 
two  or  three  "  millions,  —  evidently  not  enough  to  raise  general 
prices  one  per  cent,  and  hardly  to  produce  a  perceptible  effect 
upon  the  price  even  of  any  one  commodity  of  large  consump- 
tion, such  as  cotton,  flour,  sugar,  tea,  or  any  other  that  is  liable 
to  be  affected  by  speculative  movements. 

The  published  returns  of  the  Bank  of  England,  which  give 
the  average  amount  of  the  circulation  for  every  week  in  the 
year,  afford  curious  proof  of  the  correctness  of  our  position. 
In  1847,  there  was  a  monetary  crisis  in  England,  which,  with 
one  exception,  that  of  1825,  was  severer  than  any  that  had 
been  experienced  since  the  commencement  of  the  century. 
There  were  two  periods  of  stricture  or  panic  in  the  course  of 
the  year,  the  one  occurring  towards  the  end  of  April,  and  the 
other  in  October,  the  intervening  period  being  one  of  compar- 
ative quiescence.  "  The  effect  of  the  severe  contraction  of  ac- 
commodation," says  Mr.  Tooke,  "  was  to  paralyze  nearly  all 
transactions  on  credit  throughout  the  country."  Every  descrip- 
tion of  property,  (food  only  excepted,  as  the  crops  had  been 
deficient,)  rapidly  fell  in  value  to  a  very  great  extent.  "  It 
would  not  be  easy,"  remarked  Lord  Ashburton,  "  to  estimate 
this  depreciation,  extending  over  all  merchandise,  stocks,  rail- 

*  Bills  of  exchange,  it  should  be  observed,  perform  the  same  office  in  England 
which  promissory  notes  do  in  this  country,  their  number  and  amount  indicating  to 
some  extent,  though  not  entirely,  the  extent  of  the  purchases  that  have  previously 
been  made  upon  credit,  and  the  returns  from  the  Stamp-Office  making  it  possible  to 
estimate  very  nearly  the  average  amount  of  them  in  circulation  at  any  one  time. 


A    COMMERCIAL    CRISIS.  445 

road  shares,  &c. ;  it  probably  would  not  have  been  overstated 
at  from  ten  to  twenty  per  cent ;  but  what  was  worse,  it  para- 
lyzed this  property  in  the  hands  of  the  possessors,  rendering  it 
unavailable  towards  meeting  their  engagements,  and  thus  pro- 
duced, in  many  cases,  pecuniary  sacrifices  much  beyond  the 
mere  depreciation  of  the  value  of  the  property  itself."  Yet  it 
is  a  curious  fact,  that  the  average  amount  of  the  notes  of  the 
Bank  of  England,  and  of  all  the  banks  of  issue  in  the  United 
Kingdom,  in  the  hands  of  the  public,  was  greater  during  the 
stricture  than  in  the  intervening  period ;  and  was  very  nearly 
equal  to  the  average  of  the  circulation  in  the  years  1845  and 
1846,  when  the  speculation  in  railroad  stock,  which  was  one  of 
the  chief  causes  of  the  crisis,  was  at  its  height.*  Mr.  Danson 
says  :  "  During  those  months  in  which  the  purchases  and  sales 
of  railway  property  were  most  numerous  and  extensive,  while 
everybody  was  buying  and  selling  shares,  and  the  current  rate 
of  interest  was  only  2|  per  cent,  that  portion  of  the  circulating 
medium  which  consisted  of  Bank  of  England  notes  was  but 
slightly,  if  at  all,  increased ;  and  it  reached  its  greatest  amount 
when  the  prices  of  shares  were  lowest,  when  everybody  had 
ceased  to  speculate,  when  the  number  and  amount  of  current 
transactions  were  reduced  to  the  lowest  point  by  discredit,  and 
when  the  current  rate  of  interest  for  first-class  bills  had  risen 
from  2|  to  4£  per  cent." 

The  experience  of  the  United  States  agrees  perfectly  with 
that  of  England,  in  proving  that  the  circulation  of  bank-notes 
is  not  perceptibly  expanded  in  periods  when  commerce  is  brisk, 
speculation  rife,  and  the  rates  of  interest  are  low,  —  in  one 
word,  when  it  is  usually  said  that  "  money  is  plenty " ;  and 
that  it  is  not  restricted,  but  usually  somewhat  increased,  when 
a  crisis  ensues,  and  the  rates  of  interest  are  raised  to  the  highest 

*  The  average  of  the  Bank  of  England  circulation  for  the  six  weeks  ending  Au- 
gust 14,  1847,  (a  period  of  quiescence,)  was  £  19,600,000 ;  and  in  the  six  weeks  end- 
ing November  20,  (a  period  of  panic,)  it  was  £  20,900,000.  The  aggregate  bank- 
note circulation  of  the  United  Kingdom  for  the  month  ending  August  14,  amounted 
to  £34,500,000,  and  in  that  ending  November  6,  to  £36,700,000.  For  the  four 
weeks  ending  April  24,  (the  first  period  of  panic,)  the  Bank  of  England  circulation 
was  21  millions,  and  that  of  all  the  banks  of  issue  was  38.9  millions.  The  average 
circulation  for  1846,  which  the  currency  doctors  would  call  "  the  year  of  expansion," 
was,  for  the  Bank  of  England,  21.1  millions;  for  all  the  banks,  39.6  millions.  See 
the  table  appended  to  Tooke's  History  of  Prices  from  1839  to  1847  inclusive,  p.  448. 
38 


446          EFFECT  OF  SPECULATION  ON  PRICES  : 

point,  and  when,  on  account  of  the  great  difficulty  of  meeting 
pecuniary  engagements,  bankruptcy  is  frequent.  It  will  be 
generally  admitted,  that  1853  was  a  year  of  the  former  charac- 
ter, being  a  period  of  advancing  prices,  few  failures,  general 
speculation  in  railroad  stocks  and  other  securities,  and  having 
all  the  usual  signs  of  commercial  prosperity.  The  aggregate 
circulation  of  all  the  Massachusetts  banks  in  September  of  this 
year  was  about  $  21,200,000.  The  following  year,  1854,  was 
of  the  opposite  character,  being  a  time  of  great  financial  dis- 
tress, which  steadily  increased,  till,  in  December,  it  amounted 
to  a  panic.  Now  the  total  circulation  of  the  Boston  and  the 
country  banks  in  this  unlucky  year  never  fell  below  23  millions 
of  dollars ;  in  July,  it  amounted  to  25  millions,  and  early  in 
December,  when  the  crisis  was  at  its  height,  it  was  24  J  mil- 
lions. A  period  of  quiescence  began  in  the  spring  of  1855, 
and  continued  nearly  to  the  close  of  the  year ;  speculation  was 
repressed,  but  the  rates  of  interest  were  low,  and  it  was  easy 
to  obtain  loans.  Yet  in  April  of  this  year  the  circulation  had 
fallen  off  to  about  21^  millions,  and  early  in  September  it  was 
less  than  23  millions.* 

It  is  not,  then,  the  want  of  money  which  occasions  distress 
and  bankruptcy  in  a  commercial  crisis,  or  when  the  rates  of 
interest  are  very  high ;  for  the  returns  show  that  the  amount 
of  the  circulation  is  usually  increased  at  such  periods,  though 
the  difference,  whether  of  excess  or  defect,  is  too  slight  to  have 
any  perceptible  effect  upon  the  markets.  But  the  real  cause 
of  the  distress  is  the  insufficiency  of  the  disposable  capital  in 
the  market  to  meet  the  sudden  increase  in  the  demand  for 
loans,  which  is  occasioned  when  the  time  arrives  for  paying  off 
the  excessive  purchases  on  credit  that  have  been  made  during 
the  fever  of  a  general  speculation.  The  notes  of  hand  and 
bills  of  exchange,  which  were  so  freely  and  thoughtlessly  given 
when  prices  were  advancing,  and  when  it  was  expected  that 
they  would  advance  still  higher,  must  come  to  maturity,  usu- 
ally in  six  months  or  less ;  and  then  come  the  pressure  and 

*  As  the  law  now  requires  a  weekly  report  from  the  Boston  banks,  and  a  monthly 
report  from  the  banks  out  of  Boston,  to  be  made  on  oath  to  the  Secretary  of  State, 
and  published  in  the  newspapers,  we  have  the  means  of  ascertaining  their  condition 
at  any  period,  which  formerly  was  impossible.  See  American  Almanac  for  1855 
and  1856. 


A    COMMERCIAL    CRISIS.  447 

the  panic.  As  it  was  the  unusual  amount  of  these  private 
"promises  to  pay,"  and  the  extravagance  of  the  purchases  in 
which  they  originated,  that  first  produced  the  enhancement 
of  prices,  so  now  the  demanded  fulfilment  of  them  causes  pri- 
ces to  recede,  and  makes  speculators  eager  to  sell,  and  multi- 
plies the  applications  to  banks  and  usurers  for  loans.  The 
whole  distress  is  then  imputed  to  "  the  tightness  of  the  money 
market,"  though  the  amount  of  money  in  circulation  is  just  as 
great  as  ever,  probably  greater,  and  though  money  has  been  as 
passive,  or  has  played  as  insignificant  a  part  in  the  matter,  as 
the  carts  and  ships  in  which  the  merchandise  that  was  bought 
on  speculation  is  transported.  The  speculator  who  makes  an 
eager  appeal  to  a  bank  for  assistance,  does  not  ask  that  the 
circulation,  or  bank  issues,  shall  be  increased  for  his  sake ;  he 
does  not  want  coin  or  bank-notes  particularly,  but  will  be  en- 
tirely satisfied  with  a  check  which  will  suffice  to  take  up  his 
note,  and  the  only  effect  of  which  will  be  to  transfer,  either  at 
that  bank  or  another,  a  certain  amount  of  the  deposits  from  the 
credit  of  one  person  to  that  of  another,  without  adding  a  dollar 
to  the  circulation.  Every  one  knows,  that,  in  a  large  commer- 
cial city,  nearly  all  promissory  notes  are  paid  in  this  manner, 
or,  if  bank-notes  are  used,  it  is  only  to  be  carried  across  the 
entry,  or  across  the  street,  to  another  bank,  without  remaining 
an  hour  in  circulation.  In  such  case,  a  bank-note  for  $  100  or 
$  1,000  is  only  a  substitute  for  a  check,  and  is  hardly  entitled 
to  be  called  "  money " ;  it  is  only  a  ticket  for  the  transfer  of 
credit,  and  has  no  effect  whatever  on  prices. 

When,  in  a  period  of  financial  pressure,  a  complaint  is  made 
of  "  the  scarcity  of  money,"  it  means  only  that  capital  is  wanted 
on  credit,  or,  in  other  words,  that  there  is  a  greater  demand  for 
loans  than  the  banks  and  other  dealers  in  loans  can  supply. 
There  is  always  a  certain  amount  of  disposable  capital  in  the 
market,  seeking  investment  in  loans.  It  is  accumulated  chiefly 
by  savings  from  income,  which  are  made  by  persons  who  are 
unwilling  or  unable  to  manage  their  capital  for  themselves  by 
engaging  in  industrial  enterprises,  and  therefore  seek  to  lend  it 
to  others.  A  considerable  portion  of  this  floating  fund  is  accu- 
mulated in  the  banks,  making  up  both  their  capitals  and  de- 
posits, and  thus  constituting  far  the  larger  part  of  what  they 
are  able  to  lend  to  their  customers.  Hence  it  is,  that  what  are 


448  EFFECT    OF    SPECULATION    ON    PRICES  : 

called  the  "  loans  and  discounts  "  of  the  banks  so  largely  exceed 
the  amount  of  their  circulation.  Cut  off'  altogether  their  power 
of  issuing  bank  currency,  and  their  ability  to  make  loans  would 
not  be  diminished,  on  an  average,  more  than  one  fifth.  The 
aggregate  loan  by  the  Massachusetts  banks  amounts  almost 
precisely  to  one  hundred  millions,  and  their  average  circulation, 
as  we  have  just  seen,  is  only  about  twenty-three  millions  ;  and 
from  this  last  sum  must  be  deducted  about  three  millions  for 
the  specie  reserves,  which  are  kept  only  for  the  security  of  their 
circulation,  and  would  come  into  active  use,  or  be  disposable 
for  loans,  if  that  circulation  were  taken  away. 

And  here  we  can  see  another  reason  why  the  banks  are  un- 
able to  increase  or  diminish  at  pleasure  the  issue  of  their  notes. 
It  is  only  by  reducing  their  loans  and  discounts  immensely, 
that  they  can  be  sure  of  acting  at  all  upon  their  outstanding 
circulation ;  cut  off  thirty  millions,  for  instance,  from  the  loans 
and  discounts  by  the  Massachusetts  banks,  and  as  seventy 
millions  would  still  remain  in  the  hands  of  their  customers,  the 
larger  part  of  the  twenty-three  millions  of  their  notes  might 
continue  to  circulate ;  in  other  words,  the  portion  of  the  loan 
which  was  withdrawn  might  be  paid  back  to  them  almost  ex- 
clusively in  coin  or  the  notes  of  banks  in  the  neighboring 
States,  or  by  transferring  a  large  amount  from  their  deposits. 
On  the  other  hand,  when  they  are  not  diminishing,  but  extend- 
ing their  loans,  their  circulation  may  come  back  upon  them  in 
spite  of  themselves. 

Hence,  also,  if  the  complaint  against  the  banks  for  undue 
"  expansion  "  in  a  speculating  period,  and  undue  "  curtailment " 
when  the  crisis  comes,  means  anything,  it  means  an  expansion 
and  curtailment,  not  of  bank  currency,  but  of  bank  loans  and 
discounts.  There  would  be  some  truth  in  this  statement, 
though  it  may  still  be  said,  that  the  difference  in  the  amount  of 
the  loan  is  not  large  enough  to  have  any  considerable  effect 
on  prices.  The  loan  from  the  Massachusetts  banks,  which  a 
little  exceeded  ninety-three  millions  early  in  December,  1854, 
when  the  financial  pressure  was  at  its  height,  rose  to  over 
ninety-nine  millions  in  September,  1855,  when  the  market  was 
quiescent  and  the  rates  of  interest  low.  The  difference  was 
only  six  per  cent,  and  the  amount  of  six  millions  could  not 
raise  general  prices  more  than  one  or  two  per  cent.  And  even 


A    COMMERCIAL    CRISIS.  449 

this  difference  is  not  to  be  laid  to  the  fault  of  the  banks,  but 
of  their  customers,  who,  when  the  demand  for  loans  was  great- 
est, withdrew  five  millions  from  their  deposits,  and  over  one 
million  from  their  specie  reserves.  The  banks,  who  only  play 
the  part  of  brokers  in  this  matter,  bringing  borrowers  and  lend- 
ers together,  made  smaller  loans  because  less  capital  was  placed 
at  their  disposal. 

The  other  portion  of  floating  or  disposable  capital,  which  is 
in  the  market  for  borrowers  at  varying  rates  of  interest,  but 
does  not  get  into  the  banks,  or  is  only  lodged  there  temporarily 
on  deposit,  is  much  more  fluctuating  in  amount,  and  is  the  real 
agent  or  subject  of  that  "  expansion "  and  "  contraction"  which 
are  so  much  complained  of.  During  the  period  of  quiescence 
which  follows  a  commercial  crisis,  people  go  on  quietly  making 
savings  from  income,  and,  having  learned  from  recent  woful 
experience  the  folly  of  new  speculations  and  hazardous  invest- 
ments, they  prefer  not  to  engage  in  any  enterprise  on  their  own 
account,  but  only  to  lend  their  surplus  funds  on  good  mort- 
gages or  first-rate  personal  security,  and,  in  this  last  case,  only 
for  short  periodo.  But  as  almost  everybody  at  such  a  time  is 
afraid  of  speculation,  new  enterprises  are  not  started,  trade  is 
quiet,  and  there  is  not,  consequently,  much  demand  for  loans, 
and  that  little  demand  is  fully  supplied  by  the  banks  from  then- 
regular  funds.  Lenders  then  compete  with  each  other,  and 
strive  to  tempt  merchants  and  manufacturers  to  borrow  by  of- 
fering the  use  of  capital  at  low  rates  of  interest.  Even  the 
banks,  under  such  circumstances,  are  sometimes  compelled  to 
reduce  their  rates  of  discount,  in  order  to  find  borrowers  and 
keep  their  capital  employed.  Purchases  of  approved  stocks 
already  for  some  time  in  the  market,  whether  of  national  or 
State  funds,  banks,  manufactories,  or  railroads,  have  no  effect 
in  diminishing  the  amount  of  disposable  capital  in  the  loan- 
market,  but  only  transfer  the  ownership  of  portions  of  it  to 
other  individuals.  If  A,  who  seeks  to  invest  $  50,000,  cannot 
find  a  borrower  who  will  take  it  on  good  security  and  pay  him 
a  satisfactory  rate  of  interest  for  it,  and  finally  decides  to  buy 
Reading  Railroad  bonds,  or  New  York  State  stocks,  he  only 
transfers  his  $  50,000  to  B,  who  sells  him  these  bonds  or  stocks, 
and  who  will  now  come  into  the  loan-market  to  find  a  bor- 
rower for  the  funds  which  he  has  received.  The  supply  of  dis- 
38* 


450  EFFECT    OF    SPECULATION    ON    PRICES  : 

posable  capital,  then,  will  be  just  the  same  as  before.  If,  how- 
ever, a  State,  a  city,  or  a  railroad  comes  forward  to  contract  a 
new  loan,  and  thus  issues  an  additional  amount  of  stocks  or 
bonds,  the  capital  which  it  receives  is  permanently  taken  out 
of  the  loan-market,  and  expended,  perhaps  in  constructing 
water-works,  new  roads,  or  other  internal  improvements. 

I  have  already  explained  the  phenomena  of  the  gradual  de- 
clension of  the  rate  of  profit,  which  takes  place  in  every  coun- 
try as  it  advances  in  opulence  and  gradually  extends  its  enter- 
prise over  the  whole  field  for  the  profitable  employment  of  fixed 
capital.  This  declension  is  soon  manifested  in  the  loan-market, 
steadily  operating  against  the  rate  of  interest,  and  causing  it, 
though  with  many  fluctuations,  to  move  slowly  dowmvards. 
The  savings  from  income,  which  at  first,  for  the  most  part, 
were  invested  as  soon  as  made,  either  in  constructing  roads, 
docks,  and  canals,  or  in  furnishing  manufactories  with  costly 
machinery,  are  finally  driven  more  and  more  into  the  market 
as  floating  capital,  seeking  borrowers,  because  it  is  found  that 
the  work  of  fixed  capital  is  so  nearly  completed,  that  no  farther 
application  can  be  made  of  it  except  at  great  hazard,  or  with  a 
prospect  of  very  small  dividends.  After  the  loan-market  be- 
comes gorged,  however,  and  the  losses  experienced  in  former 
speculations  are  gradually  forgotten,  the  low  rates  of  interest 
and  the  facility  of  obtaining  loans  again  allure  the  multitude 
into  hazardous  enterprises.  New  schemes  are  brought  forward, 
and  old  ones  resuscitated.  Docks,  copper-mines,  new  railroads, 
laying  out  new  cities,  cutting  lumber,  driving  tunnels  through 
mountains  and  under  rivers,  opening  trade  with  Australia,  and 
many  similar  undertakings,  are  proposed  as  excellent  means  of 
investing  capital  and  obtaining  large  returns.  Merchants  catch 
the  infection,  and  make  large  importations  of  goods.  The 
scale  of  expenditure  is  enlarged,  as  people  are  tempted  to  spend 
in  proportion  to  their  expected  gains ;  and  thus  prices  begin  to 
rise.  The  merits  of  every  new  scheme  are  so  loudly  trumpeted, 
that  those  who  first  invested  in  them  are  enabled  to  sell  out 
their  shares  at  a  high  profit.  The  plethory  of  the  loan-market 
is  so  far  relieved,  that  the  rates  of  interest  rise,  and  the  cautious 
and  prudent  capitalists  are  as  much  delighted  as  the  daring 
speculators. 

After  a  time,  the  period  of  payment  arrives.      The  notes 


A    COMMERCIAL    CRISIS.  451 

which  have  been  given  for  heavy  purchases  on  credit,  come  to 
maturity,  and  anxious  borrowers  find  to  their  dismay  that  the 
tide  in  the  market  has  turned,  and  there  is  now  very  little  float- 
ing capital  to  be  had,  and  that  only  at  high  rates.  There  is  an 
immense  increase  in  the  demand  for  loans,  and  a  great  diminu- 
tion of  the  supply,  as  many  capitalists  have  caught  the  infec- 
tion, and  preferred  to  speculate  with  their  funds,  rather  than 
to  lend  them  on  interest.  The  banks,  indeed,  continue  to  lend 
as  usual,  as  their  capital  exists  for  no  other  purpose  ;  but  their 
means  are  strictly  limited,  and  they  can  only  supply  the  ordi- 
nary amount  of  accommodation  to  their  customers,  whose 
wants  are  sadly  increased.  They  are  besieged  with  applica- 
tions which  they  cannot  grant,  and  are  then  blamed  for  having 
first  contributed  to  heighten  the  excitement,  by  offering  loans 
at  low  rates  some  months  before,  and  now  refusing  to  lend 
except  in  small  sums  and  on  harder  terms.  The  charge  is 
wholly  unjust,  for  by  furnishing  a  steady  supply  to  the  loan- 
market,  not  enlarged  in  a  period  of  speculation  nor  diminished 
in  a  time  of  pressure,  their  operation  is  like  that  of  the  balance- 
wheel  in  a  machine,  tending  to  deaden  the  shock  of  transition, 
and  to  moderate  both  extremes.  The  difficulties  which  the 
speculators  labor  under  compel  them  to  make  forced  sales  of 
their  shares  or  of  the  merchandise  which  they  have  bought  at 
inordinate  prices ;  and  this  eagerness  to  sell  creates  suspicion, 
and  soon  leads  to  an  exposure  of  the  rottenness  of  many  of 
the  schemes  in  which  they  have  engaged.  These  fictitious 
values  are  destroyed,  and  their  fancied  wealth  disappears  like 
a  dream.  Public  confidence  being  thus  shaken,  a  general  de- 
sire to  realize  property,  as  it  is  termed,  or  to  convert  mere  evi- 
dences of  debt  into  coin  or  other  actual  possessions,  ensues ; 
and  then  follow  many  failures,  and  general  agitation  and  dis- 
tress. 

The  cycle  of  events  which  I  have  described,  is  so  far  inde- 
pendent of  any  action  of  the  currency,  that  it  might  all  occur 
in  such  a  city  as  Amsterdam  was,  when  it  had  but  one  bank, 
and  that  one  only  a  bank  of  deposit,  in  which  the  merchants 
lodged  all  their  surplus  funds,  and  effected  all  payments  among 
themselves  by  a  mere  transfer  of  credit  on  the  books.  There, 
also,  a  period  of  quiescence  in  trade  might  cause  an  accumula- 
tion of  floating  capital,  and  a  consequent  facility  of  obtaining 


452  EFFECT    OF    SPECULATION    ON    PRICES  : 

loans  on  low  rates,  which  would  finally  induce  reckless  specu- 
lation ;  and  this  is  sure  to  be  followed  by  all  the  phenomena 
of  a  commercial  crisis.  To  expect  that  men  will  learn  wisdom 
from  the  frequent  recurrence  of  these  evils,  so  as  to  be  able  to 
avoid  them  in  future,  would  be  to  expect  that  they  would 
cease  to  make  savings  from  income,  or  that  the  accumulation 
of  floating  capital  thus  produced  would  no  longer  reduce  the 
rates  of  interest,  or  that  no  persons  would  be  found  willing  to 
engage  in  hazardous  undertakings  when  they  can  make  unlim- 
ited purchases  on  credit,  and  are  importuned  to  accept  loans  on 
easy  terms. 

It  must  not  be  supposed,  however,  that  reckless  speculation 
is  the  only  cause  of  disturbance  in  the  loan-market,  rendering 
the  supply  for  a  while  inadequate  to  the  demand.  Physical 
or  political  causes,  a  failure  of  the  crops,  the  breaking  out  of  a 
war,  or  the  return  of  peace,  may  create  a  sudden  demand  for 
capital  to  be  sent  abroad,  which  will  so  far  lessen  the  quantity 
usually  offered  to  borrowers  as  to  occasion  them  serious  in- 
convenience, and  even  to  create  a  panic.  For  illustration,  I 
need  only  borrow  in  part  Mr.  Mill's  account  of  the  crisis  of 
1847.  "  It  is  not  universally  true,"  he  says,  "  that  the  contrac- 
tion of  credit  characteristic  of  a  commercial  crisis  must  have 
been  preceded  by  an  extraordinary  and  irrational  extension  of 
it.  The  crisis  of  1847  belonged  to  another  class  of  mercantile 
phenomena.  There  occasionally  happens  a  concurrence  of 
circumstances  tending  to  withdraw  from  the  loan-market  a  con- 
siderable portion  of  the  capital  which  usually  supplies  it.  These 
circumstances,  in  the  present  case,  were  great  foreign  payments, 
(occasioned  by  the  high  price  of  cotton  and  the  unprecedented 
importation  of  food,)  together  with  the  continual  demands  on 
the  circulating  capital  of  the  country  by  railway  calls  and  the 
loan  transactions  of  railway  companies,  for  the  purpose  of 
being  converted  into  fixed  capital  and  made  unavailable  for 
future  lending.  These  various  demands  fell  principally,  as 
such  demands  always  do,  on  the  loan-market.  A  great,  though 
not  the  greatest,  part  of  the  imported  food  was  actually  paid 
for  by  the  proceeds  of  a  government  loan.  The  extra  pay- 
ments which  purchasers  of  corn  and  cotton,  and  railway  share- 
holders, found  themselves  obliged  to  make,  were  either  made 
with  their  own  spare  cash,  or  with  money  raised  for  the  occa- 


A    COMMERCIAL    CRISIS.  453 

sion.  On  the  first  supposition,  they  were  made  by  withdraw- 
ing deposits  from  bankers,  and  thus  cutting  off  a  part  of  the 
streams  which  fed  the  loan-market ;  on  the  second  supposition, 
they  were  made  by  actual  drafts  on  the  loan-market,  either  by 
the  sale  of  securities,  or  by  taking  up  money  at  interest.  This 
combination  of  a  fresh  demand  for  loans  with  a  curtailment  of 
the  capital  disposable  for  them,  raised  the  rate  of  interest,  and 
made  it  impossible  to  borrow  except  on  the  very  best  security. 
Some  firms,  therefore,  which,  by  an  improvident  and  unmer- 
cantile  mode  of  conducting  business,  had  allowed  their  capital 
to  become  either  temporarily  or  permanently  unavailable,  be- 
came unable  to  command  that  perpetual  renewal  of  credit 
which  had  previously  enabled  them  to  struggle  on.  These 
firms  stopped  payment ;  their  failure  involved,  more  or  less 
deeply,  many  other  firms  which  had  trusted  them;  and,  as 
usual  in  such  cases,  the  general  distrust,  commonly  called  a 
panic,  began  to  set  in." 

An  occasion  to  make  large  foreign  remittances  may  arise 
either  from  a  sudden  increase  of  imports,  or  from  a  sudden 
diminution  of  exports.  In  the  United  States,  as  we  may  al- 
ways raise  more  food  than  is  necessary  for  our  own  consump- 
tion, it  is  more  likely  to  proceed  from  the  latter  cause ;  in  Great 
Britain,  where  the  crops  in  the  most  fruitful  seasons  are  hardly 
sufficient  to  feed  the  people,  and  are  liable  to  frequent  though 
partial  failures,  the  former  cause  is  most  likely  to  operate. 
Here,  a  financial  pressure  is  occasioned  by  an  excess  of  food, 
or  a  want  of  demand  in  Europe  for  our  surplus  crops,  so  that 
we  are  called  upon  to  remit  gold  instead  of  exporting  provis- 
ions ;  there,  it  arises  from  a  scarcity  or  dearth,  which  compels 
the  people  to  buy  grain  of  other  nations.  But  in  either  case,  a 
remittance  of  gold  is  not  a  necessary  or  a  characteristic  feature 
of  the  phenomenon.  In  the  long  run,  commodities  are  always 
purchased  with  commodities ;  we  pay  for  our  imports  with  our 
exports.  But  the  call  being  a  sudden  one  for  the  remittance 
of  actual  values,  and  not  having  anything  else  to  send  abroad 
except  at  a  great  sacrifice,  we  send  bullion  or  coin,  and  the 
drain  comes  upon  the  bank  reserves ;  but  the  next  year,  we 
have  to  buy  the  specie  back  again,  by  either  restricting  our 
imports,  or  increasing  our  exports.  The  bank  reserves  being 
lessened  by  this  abstraction  of  coin,  those  institutions  usually 


454  EFFECT    OF    SPECULATION    ON    PRICES  : 

diminish  their  discounts,  in  order  to  provide  for  their  own  secu- 
rity. But  in  1847,  the  Bank  of  England,  though  £  7,000,000 
in  coin  had  been  taken  from  its  coffers  to  send  to  America  and 
the  Baltic  for  food,  adopted  the  bolder  policy  of  increasing  both 
its  discounts  and  its  circulation ;  or  rather,  the  latter  was  in- 
creased in  spite  of  itself,  in  order  to  fill  up  the  vacuum  both  in 
the  loan-market  and  the  currency  which  had  been  created  by 
these  foreign  remittances.*  The  financial  pressure  would  oth- 
erwise have  been  much  greater;  and  in  fact,  it  was  at  last 
stopped  entirely  by  an  announcement  from  the  Bank,  under 
the  sanction  of  the  government,  that  it  was  prepared  to  make 
further  advances,  though  at  a  high  rate  of  interest. 

And  generally,  it  may  be  observed,  that  the  drain  of  specie, 
by  falling  upon  the  bank  reserves,  though  it  should  produce  a 
slight  decrease  of  the  circulation,  is  not  so  great  an  evil  as  it 
would  be  if  it  were  all  subtracted  from  the  active  circulation, 
or  if  domestic  commodities  should  be  immediately  sent  abroad 
at  a  great  sacrifice  to  pay  the  debt,  through  our  inability  to 
make  the  remittance  in  bullion.  These  reserves,  being  locked 
up  in  the  vaults,  have  no  effect  whatever  on  prices,  and  a  large 
portion  of  them  might  be  sent  abroad  without  the  loss  being 
perceived  at  the  time,  —  certainly  without  its  being  indicated 
by  any  change  whatever  in  the  market.  True,  the  money 
must  all  be  bought  back  again,  ultimately,  to  provide  for  future 
emergencies  of  the  banks  of  a  different  character ;  and  it  will  all 
be  bought  back  again  within  a  year,  either  by  restricting  our 
imports  or  increasing  our  exports,  so  as  to  make  up  for  the 
temporary  excess  of  the  former,  which  first  produced  the  drain 
of  specie.  We  send  abroad  the  money  at  first,  only  as  a  con- 
venient article  to  serve  for  a  sort  of  pledge  or  security  that  we 
will  soon  pay  our  debts  in  commodities.  When  the  promise 

*  Mr.  F.  Baring  stated  in  Parliament,  December  3,  1847,  that  "the  amount  of 
bullion  in  the  Bank  on  September  12,  1846,  was  £  16,354,000,  and  that,  on  April  17, 
1847,  it  was  reduced  to  £9,330,000,  being  a  diminution  of  £  7,024,000.  Now  I  take 
the  same  dates  with  respect  to  the  circulation  of  notes,  and  I  find  that,  on  September 
12,  1846,  the  amount  was  £  20,982,000,  and  on  April  17,  1847,  it  was  £21,228,000, 
being  an  increase  of  £  246,000.  Perhaps  it  was  impossible,  before  the  bill  [of  1844] 
was  in  practical  operation,  to  see  how  the  reserve  of  notes  would  operate ;  but  it  cer- 
tainly never  entered  into  the  contemplation  of  any  one  then  considering  the  subject,  that 
£7,000,000  in  gold  should  run  off,  and  yet  that  the  notes  in  the  hands  of  the  public  would 
rather  increase  than  diminish." 


A    COMMERCIAL    CRISIS.  455 

is  fulfilled,  the  pledge  is  returned.  We  wanted  what  the 
financiers  call  "  an  extension,"  in  order  that  we  might  have 
time  to  raise  the  flour,  cotton,  and  tobacco  wherewith  to  pay 
our  debts ;  and  by  sending  the  specie  as  a  pledge,  we  obtain 
the  delay  that  we  wanted. 

The  result  of  this  whole  discussion  may  be  summed  up  in 
the  following  proposition :  —  that  the  function  of  money  as  a 
means  of  effecting  exchanges  is  entirely  distinct  from  its  function 
as  a  standard  or  measure  of  value.  For  the  former,  which  is  its 
chief  purpose,  the  relative  abundance  or  scarcity  of  money  is 
a  matter  of  no  importance  whatever.  If  we  have  more  money 
than  we  need,  a  portion  of  it  will  lie  idle,  either  in  the  vaults 
of  banks  or  in  the  pockets  of  individuals.  If  we  have  less 
money  than  might  seem  necessary,  we  can  get  along  very  well 
with  substitutes,  and  can  even  dispense  with  the  use  of  money 
altogether.  In  other  words,  money  is  a  convenience,  but  not 
a  necessity.  Thus,  if  we  have  no  gold  or  silver  coin,  bits 
of  paper,  called  bank-notes,  will  do  just  as  well ;  if  we  have 
not  even  bank-notes,  then  checks,  bills  of  exchange,  book-cred- 
its, transfers  of  credit  on  the  books  of  a  bank  or  a  clearing- 
house, will  enable  us  to  purchase  goods,  and  to  make  or  receive 
payments ;  and  if  we  have  not  even  these  contrivances,  we 
can  still  barter  commodities  directly  for  commodities,  as  we 
already  do,  to  a  considerable  extent,  through  the  institution  of 
mutual  accounts  current.  Turn  the  matter  as  we  may,  we 
cannot  impute  all  the  evils  in  the  commercial  world  to  money 
as  the  universal  scape-goat,  or  hope  to  get  rid  of  them  by  tin- 
kering the  currency.  Trade  is  an  exchange  of  merchandise ; 
and  money  plays  as  insignificant  a  part  in  it,  to  recur  to  a 
former  illustration,  as  the  carts  in  which  the  merchandise  is 
transported.  If  we  have  not  carts  enough,  we  can  carry  the 
goods  on  our  backs ;  if  we  have  not  money,  we  can  still  ex- 
change, though  with  some  additional  trouble.  When  we 
spend,  we  consume,  not  money,  but  commodities  that  gratify 
our  tastes  and  appetites.  When  we  contract  debts,  we  bor- 
row, not  money,  but  the  goods  which  we  purchase  with  the 
money.  And  when  we  find  any  difficulty  in  paying  our  debts, 
the  scarcity  of  money  is  not  at  fault,  but  the  want  of  capital, 
and  this  want  arises  from  our  own  improvidence. 

The  other  function  of  money,  that  of  serving  as  a  standard 


456  EFFECT    OF    SPECULATION    ON    PRICES. 

or  measure  of  value,  is  performed  through  a  delicate  compari- 
son of  the  value  of  all  other  commodities  with  that  of  the  two 
precious  metals,  for  the  purpose  of  ascertaining,  not  so  much 
the  relation  of  merchandise  to  specie,  as  the  relation  of  all  the 
different  articles  of  merchandise  to  each  other.  It  is  useful  to 
know  that  a  barrel  of  flour  is  worth  ten  dollars,  and  a  coat 
twenty  dollars,  not  because  it  is  a  fact  of  any  practical  impor- 
tance that  a  barrel  of  flour  will  buy  ten  times  345.6  grains  of 
pure  silver,  or  that  a  coat  will  buy  twenty  times  this  quantity, 
because  very  few  persons  have  occasion  to  buy  silver  at  all ; 
but  as  the  tailor  and  the  farmer  most  frequently  barter  coats 
for  flour,  it  is  convenient  for  them  to  know  the  exact  relative 
values  of  these  two  commodities.  For  this  latter  purpose,  the 
amount  of  silver  in  a  dollar  might  be  increased  or  diminished 
to  any  extent,  and  it  would  answer  the  end  equally  well.  Con- 
sequently, in  relation  to  this  function  also,  the  abundance  or 
scarcity,  the  high  or  low  value,  of  the  precious  metals,  concerns 
us  very  little.  For  the  purposes  of  trade  between  different 
nations,  or  for  comparison  of  international  values,  moreover, 
this  alteration  of  the  quantity  of  gold  and  silver  passing  under 
a  given  name  is  a  matter  of  no  importance,  as  the  bullion-mer- 
chants take  care,  by  equalizing  their  distribution,  that  these 
two  metals  shall  have  the  same  relative  value  to  other  com- 
modities all  over  the  commercial  world.  It  is  only,  as  we  have 
seen,  for  transactions  extending  over  long  periods  of  time,  that 
it  is  necessary  to  ascertain  if  this  relative  value  has  undergone 
any  alteration. 


THE  PROTECTIVE  SYSTEM.  457 


CHAPTER     XXIV. 

THE  DOCTRINE  OF  INTERNATIONAL  EXCHANGES  ;  THE  POLICY  OF 
ENCOURAGING  DOMESTIC  MANUFACTURES  BY  LAYING  DUTIES  ON 
IMPORTED  GOODS. 

THE  explanation  which  has  been  given  in  former  chapters 
of  the  circumstances  which  determine  prices,  and  of  the  course 
of  exchange  with  foreign  countries,  has  prepared  the  way  for  a 
fuller  consideration  of  the  general  question  between  free  trade 
and  the  protective  system.  I  have  already  endeavored  at  some 
length  to  show,*  that  the  general  doctrine  of  free  trade  is  per- 
fectly reconcilable  with  the  policy  of  granting  protection  under 
special  circumstances ;  that  it  does  not  conflict,  for  example, 
with  the  system  of  imposing  for  a  time  duties  on  imported 
goods  in  order  to  foster  the  manufacturing  interest  here  in 
America,  which  cannot  flourish,  or  even  subsist  to  any  great 
extent,  without  such  favor.  I  now  resume  the  subject,  in  order 
to  consider  more  particularly  the  effects  of  such  a  system  upon 
our  intercourse  with  other  nations.  This  brings  us  at  once  to 
an  explanation  of  the  theory  of  international  values  and  ex- 
changes, —  a  recent  and  valuable  addition  to  the  science  of 
Political  Economy,  and  one  which  has  lately  compelled  the 
old-fashioned  advocates  of  free  trade  to  make  numerous  and 
very  significant  concessions  to  their  opponents.  It  has  struck 
away  the  great  prop  of  the  universality  of  their  system,  and  has 
compelled  them  to  acknowledge  that  the  importation  of  foreign 
manufactures  may  be  excessive,  even  for  a  long  period  of  years ; 
and  that  the  inevitable  consequence  of  such  excess  is  to  depress 
the  prices  of  our  exports  in  all  foreign  markets,  and  thus  to 
neutralize  all  our  natural  advantages  for  producing  these  arti- 
cles of  export,  by  compelling  us  to  exchange  them  for  foreign 
goods  upon  the  most  disadvantageous  terms. 

Hitherto,  the  evil  of  excessive  importation  has  been  held  to 
be,  that  it  caused  a  drain  of  specie  from  the  country,  or  what 

*  See  ante,  pp.  25  -  27,  and  Chapters  Vm.  and  XIV. 

39 


458  INTERNATIONAL  EXCHANGES  : 

was  technically  called  "  an  unfavorable  balance  of  trade."  To 
this  unwise  argument  the  reasonable  answer  was,  that  a  drain 
of  specie  to  any  injurious  extent  is  impossible ;  for  an  unnat- 
ural efflux  of  money  must  raise  the  value  of  what  is  left,  and 
thereby  lower  the  money  price  of  all  goods  which  are  exchanged 
for  it.  The  fall  of  prices  thus  occasioned  would  inevitably 
tempt  foreigners  hither  to  make  their  purchases,  and  the  goods 
thus  bought  must  be  paid  for  by  remittances  of  coin  or  bullion, 
so  that  the  current  of  specie  would  be  turned  the  other  way. 
Money  is  a  self-distributing  commodity,  which  always  appor- 
tions itself  among  commercial  nations  in  exact  proportion  to 
the  wants  of  each. 

In  theory,  this  reasoning  is  perfectly  sound ;  and  though 
many  attempts  have  been  made  to  refute  it,  we  know  of  none 
which  have  had  even  the  appearance  of  success.  Practically, 
however,  as  all  intelligent  merchants  will  admit,  very  large  im- 
portations are  found  to  be  attended  with  very  great  evils.  Ex- 
perience has  proved  that  they  tend  to  depress  the  prices  of 
domestic  products,  to  paralyze  domestic  industry,  and  even  to 
bring  on  commercial  crises,  which  are  equally  disastrous  to  our 
agricultural,  commercial,  and  manufacturing  interests.  To 
account  for  these  facts,  which  are  inexplicable  upon  the  narrow 
principles  of  Adam  Smith  and  McCulloch,  we  must  go  back 
to  first  principles,  and,  after  gaining  clear  ideas  of  the  nature  of 
commercial  exchanges  in  general,  must  see  how  the  aggregate 
of  our  own  exchanges  with  other  nations  is  effected. 

In  the  preceding  chapter,  it  has  been  shown  that  prices  are 
determined  by  the  relation  of  the  demand  to  the  supply,  and 
that  an  extension  of  the  market,  or  an  increase  of  the  demand, 
can  be  obtained  only  by  submitting  to  a  fall  of  prices,  so  as  to 
bring  the  article  within  the  reach  of  a  greater  number  of  con- 
sumers. In  any  market,  only  a  certain  quantity  of  goods  at  a 
given  price  can  be  consumed ;  if  more  goods  are  forced  upon 
the  market  than  it  naturally  requires,  the  price  must  fall,  and 
then  the  consumption  may  be  very  much  increased. 

It  has  also  been  proved,  in  treating  of  bills  of  exchange,  (pp. 
319  -  329,)  that  we  really  purchase  commodities  with  commod- 
ities,—  that  we  pay  for  our  whole  imports  with  our  whole  ex- 
ports,—  that  if,  in  our  traffic  with  any  one  country,  (China, 
for  instance,)  our  imports  much  exceed  our  exports,  then  we 


THE  PROTECTIVE  SYSTEM.  459 

pay  the  balance,  not  in  money,  but  by  transferring  to  that 
country  the  debt  due  to  us  from  another  country,  (England,  for 
instance,)  with  which  our  trade  is  such  that  our  exports  exceed 
our  imports.  It  is  only  the  balance  of  the  immensely  long 
"  account  current "  of  our  trade  with  all  foreign  countries  what- 
soever, which  is  struck  in  money ;  and  this  cash  balance  can- 
not be  more  than  an  insignificant  fraction  of  either  side  of  the 
account.  The  advocates  for  free  trade  have  always  insisted, 
that  we  must  buy  merchandise  of  England,  not  only  to  induce, 
but  even  to  enable,  England  to  buy  merchandise  of  us,  —  that 
we  must  buy  of  any  country  in  order  to  sell  to  her,  and  must 
buy  as  much  as  we  sell.  But  it  is  not  so.  It  is  not  necessary 
that  we  should  take  of  English  manufactured  goods  enough  to 
pay  us  for  all  the  cotton,  tobacco,  and  wheat  which  we  sell  to 
England ;  —  England  is  able,  though  of  course  she  is  not  very 
willing,  to  pay  us  the  balance  in  tea  from  China,  coffee  from 
Brazil,  hemp  from  Russia,  or  whatever  other  article,  from  what- 
ever other  country,  we  see  fit  to  require.  We  can  compel  her 
to  pay  us  in  whatever  commodities  we  may  select ;  for  the 
articles  which  we  sell  to  England  —  cotton,  tobacco,  and 
wheat  —  are  of  prime  necessity  to  her,  and  most  of  which  she 
cannot  obtain  elsewhere.  As  our  exports  must  pay  for  our 
imports,  the  only  point  to  be  considered  is,  how  we  can  dispose 
of  the  exports  to  most  advantage,  or  obtain  for  them  the  largest 
return  of  the  imports. 

The  cost  to  us  of  our  domestic  products  is,  the  labor  that  is 
expended  upon  their  production.  But  the  cost  to  us  of  foreign 
products  is,  not  the  labor  which  has  been  expended  upon  their 
production,  but  the  labor  which  we  must  expend  upon  the  ar- 
ticles that  are  given  in  exchange  for  those  products. 

"  The  advantage  of  an  interchange  of  commodities  between 
nations,"  says  Mr.  Mill,  "  consists  simply  and  solely  in  this,  — 
that  it  enables  each  to  obtain,  with  a  given  amount  of  labor  and 
capital,  a  greater  quantity  of  all  commodities  taken  together. 
This  it  accomplishes  by  enabling  each,  with  a  quantity  of  one 
commodity  which  has  cost  it  so  much  labor  and  capital,  to 
purchase  a  quantity  of  another  commodity,  which,  if  produced 
at  home,  would  have  required  labor  and  capital  to  a  greater 
amount.  To  render  the  importation  of  an  article  more  advan- 
tageous than  its  production,  it  is  not  necessary  that  the  foreign 


460  INTERNATIONAL  EXCHANGES: 

country  should  be  able  to  produce  it  with  less  labor  and  capi- 
tal than  ourselves.  We  may  even  have  a  positive  advantage 
in  its  production ;  —  but  if  we  are  so  far  favored  by  circum- 
stances as  to  have  a  still  greater  positive  advantage  in  the  pro- 
duction of  some  other  article  which  is  in  demand  in  the  foreign 
country,  we  may  be  able  to  obtain  a  greater  return  to  our  labor 
and  capital  by  employing  none  of  it  in  producing  the  article 
in  which  our  advantage  is  least,  but  devoting  it  all  to  the 
production  of  that  in  which  our  advantage  is  greatest,  and 
giving  this  to  the  foreign  country  in  exchange  for  the  other. 
It  is  not  a  difference  in  the  absolute  cost  of  production,  which 
determines  the  interchange,  but  a  difference  in  the  comparative 
cost." 

The  inhabitants  of  Barbadoes,  for  instance,  favored  by  their 
tropical  climate  and  fertile  soil,  can  raise  provisions  cheaper 
than  we  can  in  the  United  States.  And  yet  Barbadoes  buys 
nearly  all  her  provisions  from  this  country.  Why  is  this  so  ? 
Because,  though  Barbadoes  has  the  advantage  over  us  in  the 
ability  to  raise  provisions  cheaply,  she  has  a  still  greater  advan- 
tage over  us  in  her  power  to  produce  sugar  and  molasses.  If 
she  has  an  advantage  of  one  quarter  in  raising  provisions,  she 
has  an  advantage  of  one  half  in  regard  to  products  exclusively 
tropical ;  and  it  is  better  for  her  to  employ  all  her  labor  and 
capital  in  that  branch  of  production  in  which  her  advantage  is 
greatest.  She  can  thus,  by  trading  with  us,  obtain  our  bread- 
stuffs  and  meat  at  a  smaller  expense  of  labor  and  capital  than 
they  cost  ourselves.  If,  for  instance,  a  barrel  of  flour  cost  ten 
days'  labor  in  the  United  States,  and  only  eight  days'  labor  in 
Barbadoes,  the  people  of  Barbadoes  can  still  profitably  buy  the 
flour  from  this  country,  if  they  can  pay  for  it  with  sugar  which 
cost  them  only  six  days'  labor ;  and  the  people  of  this  country 
can  profitably  sell  them  the  flour,  or  buy  from  them  the  sugar, 
provided  that  the  sugar,  if  raised  in  the  United  States,  would 
cost  eleven  days'  labor.  This  is  a  striking  example  to  show 
the  benefit  of  foreign  trade  to  both  the  countries  which  are  par- 
ties to  it.  Tte  United  States  receive  sugar,  which  would  have 
cost  them  eleven  days'  labor,  by  paying  for  it  with  flour  which 
costs  them  but  ten  days.  Barbadoes  receives  flour,  which 
would  have  cost  her  eight  days'  labor,  by  paying  for  it  with 
sugar  which  costs  her  but  six  days.  If  Barbadoes  produced 


THE  PROTECTIVE  SYSTEM.  461 

both  commodities  with  greater  facility,  but  greater  in  pre- 
cisely the  same  degree,  there  would  be  no  motive  for  inter- 
change. 

Now  let  us  apply  these  principles  to  the  trade  between  Eng- 
land and  the  United  States.  We  will  suppose,  what  is  the 
fact,  that  this  country  has  a  very  considerable  advantage  over 
England  in  the  production  of  cotton,  flour,  and  tobacco; 
while  England  has  some  advantage  (a  comparatively  trifling 
one)  over  us  in  manufactured  goods ;  —  we  say,  a  compara- 
tively trifling  advantage,  because  cotton  and  tobacco  cannot  be 
cultivated  in  England  at  all,  and  one  of  these  articles  (cotton) 
cannot  be  purchased  by  her  in  sufficient  quantities  from  any 
other  country  than  the  United  States  ;  while  we  can  manufac- 
ture all  the  goods  that  are  now  manufactured  in  England. 
Some  of  them  (the  coarser  cottons,  for  instance)  we  can  even 
manufacture  more  cheaply  than  the  English ;  but  most  of  the 
finer  fabrics,  unquestionably,  owing  to  the  lower  profits  of  cap- 
ital and  the  lower  wages  of  labor,  can  be  more  cheaply  manu- 
factured in  England.  To  simplify  the  matter  as  much  as  pos- 
sible, we  will  take  but  one  article,  flour,  as  the  representative 
of  all  the  commodities  that  America  sells  to  England ;  and 
but  one  article,  cloth,  as  the  representative  of  all  the  goods 
which  England  sells  to  America;  —  that  is,  we  will  suppose 
the  trade  between  the  two  countries  to  consist  exclusively  of 
these  two  articles.  As  it  has  been  proved,  that,  in  foreign 
trade,  we  barter  directly  commodities  for  commodities,  we  can 
fortunately  leave  money  out  of  the  case  altogether,  and  esti- 
mate the  value  or  cost  of  the  two  only  by  comparing  them 
with  each  other.  We  will  suppose,  on  account  of  the  re- 
spective advantages  possessed  by  the  two  countries,  that  the 
production  of  one  barrel  of  flour  in  England  costs  as  much 
labor  and  capital  as  would  suffice  for  the  manufacture  of  ten 
yards  of  cloth ;  while  in  America,  one  barrel  of  flour  can  be 
produced  for  three  fifths  of  its  cost  in  England,  — or,  in  other 
words,  for  as  much  labor  and  capital  as  would,  in  England, 
manufacture  only  six  yards  of  cloth.  Whether  this  state  of 
things  proves  that,  in  America,  the  cost  of  flour  is  less,  or  the 
cost  of  cloth  greater,  than  in  England,  is  a  point  of  no  impor- 
tance. We  can  simplify  the  matter  still  further,  then,  by  sup- 
posing that  cloth  can  be  manufactured  to  equal  advantage,  or 
39* 


462  INTERNATIONAL  EXCHANGES: 

with  the  same  amount  of  labor  and  capital,  in  both  countries. 
Our  supposition  is,  that,  so  long  as  each  country  produces  both 
commodities  for  itself,  the  American  price  of  a  barrel  of  flour 
will  be  six  yards  of  cloth ;  while  the  English  price  of  a  barrel 
of  flour  will  be  ten  yards  of  cloth. 

Now,  if  a  system  of  free  trade  between  the  two  countries  be 
established,  the  two  commodities  will  be  exchanged  for  each 
other  at  the  same  rate  both  in  England  and  America.  The 
price  will  be  equalized  between  the  two  countries  ;  but  at  what 
point  will  it  be  equalized  ?  Shall  the  English  price  be  estab- 
lished in  America,  or  shall  the  American  price  be  established 
in  England  ?  Or  shall  a  price  intermediate  between  the  two 
be  established  ?  Either  of  these  three  suppositions  is  possible. 
The  Englishman  can  afford  to  give  ten  yards,  for  it  will  cost 
him  that  amount  of  labor  and  capital  to  produce  the  flour  in 
his  own  country,  or  for  himself.  On  the  other  hand,  the 
American  can  afford  to  sell  the  flour  for  six  yards,  because  this 
quantity  of  cloth,  if  produced  in  his  own  country,  would  cost 
him  as  much  labor  and  capital  as  a  barrel  of  flour.  Suppose 
that,  by  the  higgling  of  the  market,  the  price  in  both  countries 
is  fixed  at  seven  yards.  The  advantage  of  the  trade  is  then 
shared  between  the  two  countries,  but  it  is  shared  unequally. 
America  gains  one  yard  on  each  barrel,  as  she  now  receives 
seven  yards  of  cloth  for  the  labor  which  formerly  produced  but 
six ;  England  gains  three  yards  on  each  barrel,  for  the  flour 
now  costs  her  but  seven  yards  a  barrel,  while  it  formerly  cost 
her  ten.  We  will  suppose  that,  at  these  rates,  America  sells 
100,000  barrels  of  flour  to  England,  and  receives  in  exchange, 
of  course,  700,000  yards  of  cloth.  The  demand  on  each  side 
must  be  just  sufficient  to  carry  off  the  supply  received  on 
the  other.  So  long  as  England  wants  only  this  amount  of 
flour,  and  the  United  States  only  this  quantity  of  cloth,  the 
interchange  will  continue  at  this  rate,  giving  three  fourths 
of  the  profit  to  Great  Britain,  and  only  one  fourth  to  this 
country. 

But  suppose  the  demand  to  vary  in  one  of  the  two  countries ; 
suppose  that  England,  on  account  of  the  increase  of  her  popu- 
lation, now  needs  150,000  barrels  of  flour,  which  America  is 
perfectly  able  and  willing  to  furnish.  But  England  can  pay 
for  this  larger  purchase  only  by  sending  over  more  cloth  ;  the 


THE  PROTECTIVE  SYSTEM.  463 

United  States,  however,  by  the  supposition,  are  fully  supplied 
with  the  700,000  yards  which  they  received  before ;  they  can- 
not buy  any  more  at  the  old  rate  of  seven  yards  for  one  barrel. 
How,  then,  is  England  to  obtain  the  additional  quantity  of 
flour  that  she  needs  ?  She  has  but  one  course  to  pursue ; 
she  must  offer  her  cloth  at  a  reduced  price,  knowing  that 
this  reduced  price  will  bring  it  within  the  reach  of  a  larger 
class  of  consumers,  who  will  take  off  the  increased  quantity 
that  she  needs  must  sell.  Instead  of  seven,  she  will  now 
offer  nine  yards  of  cloth  for  a  barrel  of  flour.  At  this  price, 
the  Americans  may  be  willing  and  able  to  buy  1,350,000 
yards  of  cloth,  which  will  furnish  the  150,000  barrels  of 
flour  required  by  England ;  or,  if  we  do  not  need  this  large 
quantity  of  cloth,  England  has  only  to  sell  this  quantity  at 
the  reduced  price  to  other  countries,  and  obtain  in  exchange 
for  it  tea,  coffee,  sugar,  and  other  products,  which  (at  this 
reduced  price  again)  we  do  need.  If  we  do  not  receive  the 
benefit  of  the  change  of  price  in  cloth,  we  shall  receive  it  in 
other  commodities. 

There  is,  indeed,  one  other  mode  by  which  England  might 
obtain  the  additional  quantity  of  flour  required  without  lower- 
ing the  price  of  her  cloth.  Suppose  that  the  demand  of  the 
United  States  for  cloth  had  been  kept  down  to  700,000  yards 
by  a  protective  tariff,  the  revenue  from  which  paid  the  ex- 
penses of  our  government,  though  it  somewhat  enhanced  the 
price  of  cloth  to  our  people.  Suppose,  further,  that  our  gov- 
ernment, learning  that  England  was  inclined  to  purchase  more 
flour  of  us,  in  order  to  favor  that  inclination,  should  deter- 
mine to  abolish  the  tariff,  and  admit  cloth  duty  free,  or  at  a 
nominal  duty.  Then,  indeed,  the  demand  for  cloth  might 
be  so  far  increased,  that  England  might  obtain  her  150,000 
barrels  of  flour  by  paying  for  it  at  the  rate  of  seven  yards  to 
a  barrel.  We  should,  indeed,  sell  the  increased  quantity  of 
breadstuff's,  but  receive  in  payment  only  1,050,000,  instead 
of  1,350,000,  yards  of  cloth.  By  this  wise  act  of  legislation, 
also,  we  should  be  obliged  to  pay  the  expenses  of  our  gov- 
ernment by  direct  taxation,  should  have  our  domestic  man- 
ufactures rained,  and  the  profits  of  our  agriculturists  much 
diminished  by  the  influx  into  their  business,  and  the  conse- 
quent competition,  of  the  disbanded  workmen  from  our  man- 
ufactories. 


464  INTERNATIONAL  EXCHANGES  : 

Those  who  have  followed  the  reasoning  thus  far  will  have 
perceived,  that  our  suppositions  all  along  have  been  only  dis- 
guised statements  of  recent  facts.  The  great  increase  of  the 
English  population  in  consequence  of  the  misery  of  that  pop- 
ulation, the  policy  of  the  English  landlords  in  depopulating 
their  vast  estates  by  driving  the  peasantry  into  the  towns,  thus 
substituting  manufactures  for  agriculture  as  their  employment, 
and  the  deficient  harvests  of  1846  and  1847,  —  all  these  causes 
combined,  created  an  evident  necessity  for  a  much  enlarged 
importation  of  breadstuff's  into  Great  Britain.  These  facts 
were  recognized  almost  simultaneously  by  the  leading  English 
statesmen  of  both  parties,  —  by  Lord  John  Russell  and  Sir 
Robert  Peel ;  and  they  led,  first  to  a  partial,  and  in  a  very 
short  time  to  a  total,  abolition  of  the  corn  laws,  —  those  laws 
which  had  existed  for  over  thirty  years,  avowedly  to  check  our 
sale  of  provisions  to  England,  and  thereby  to  enhance  the  price 
of  English  manufactures  in  America.  But  under  the  Amer- 
ican tariff  of  1842,  a  much  enlarged  supply  of  grain  from  this 
country  could  not  be  obtained  without  a  corresponding  mate- 
rial reduction  in  the  price,  not  only  of  English  manufactures, 
but  of  all  the  other  foreign  products  needed  in  this  country 
which  had  been  purchased  for  us  with  English  manufactures. 
The  English,  therefore,  were  eager  to  procure  the  repeal  or 
modification  of  this  tariff,  and  succeeded  in  persuading  Amer- 
ican statesmen  that  such  a  step  would  be  only  a  fair  return  for 
the  abolition  of  the  corn  laws,  and  that,  in  fact,  it  was  neces- 
sary, in  order  to  induce  and  enable  the  English  to  buy  more 
grain  and  flour  from  us.  This  argument  would  have  had  more 
force,  if  it  had  been  shown  how  they  could  avoid  making  this 
enlarged  purchase  at  any  rate.  But  these  representations  were 
successful ;  Congress  did  substitute  the  tariff  of  1846  for  that 
of  1842  ;  and  this  lowered  the  price  of  English  manufactures 
in  this  country  so  far,  that  our  increased  consumption  of  them 
paid  for  the  whole  enlarged  supply  of  breadstuff's  needed  by 
Great  Britain.  The  result  was,  that  a  conjuncture  of  events, 
which  ought  to  have  operated  greatly  to  the  advantage  of  the 
United  States,  and  to  the  disadvantage  of  England,  really 
paralyzed  our  domestic  manufactures,  almost  destroying  those 
of  iron,  and  greatly  injuring  those  of  cotton  and  wool,  while 
the  English  manufactures  have  never  been  more  prosperous 


THE  PROTECTIVE  SYSTEM.  465 

than  since  the  abrogation  of  the  corn  laws.  Why  should  they 
not  be  ?  The  demand  for  their  products  in  the  United  States 
has  greatly  increased,  while  the  reduction  of  price,  through 
which  alone  this  increase  of  demand  could  have  been  effected, 
has  really  taken  place,  not  through  the  English  manufacturers 
receiving  less  for  their  goods,  but  through  our  own  modifica- 
tion of  our  tariff.  We  have  thereby  just  thrown  away  the 
benefit  that  would  naturally  have  accrued  to  us  from  the  in- 
creased English  demand  for  our  provisions,  and  we  have  near- 
ly crushed  our  own  manufactures  into  the  bargain. 

I  have  now  stated  the  doctrine  of  international  values  in  the 
most  precise  manner,  carefully  analyzing  each  step  of  the  pro- 
cess, in  order  to  show  that  there  was  no  gap  in  the  reasoning. 
But  as  the  theory  of  the  matter  is  necessarily  complicated  and 
abstruse,  I  will  now  state  it  over  again  in  a  more  general  way, 
in  order  to  be  more  fully  understood. 

America  produces  chiefly  raw  material,  because  she  has  the 
advantages  of  a  more  extensive  territory,  and  a  more  fertile 
soil ;  England  produces  chiefly  manufactured  goods,  because 
she  has  the  advantages  of  more  capital,  longer  experience,  and 
cheaper  labor.  (I  must  now  use  numbers  and  measures  almost 
at  random,  for  convenience  of  brief  calculation  ;  but  any  num- 
bers and  denominations  will  answer  equally  well  to  illustrate 
the  principle  with.)  In  consequence  of  their  respective  advan- 
tages, we  will  suppose  that  England  must  give  the  labor  vested 
in  ten  pounds  of  manufactured  goods  for  one  hundred-weight 
of  raw  material ;  while  the  labor  vested  in  six  pounds  of  such 
goods  would  raise  or  buy  one  hundred-weight  of  raw  material 
in  America.  Now  the  doctrine  of  free  trade,  (which  is  in  it- 
self a  perfectly  sound  and  just  doctrine,  if  applied  to  two  coun- 
tries which  are  similarly  situated  in  every  respect,)  if  applied 
in  this  case,  would  teach  the  Americans  to  give  themselves 
exclusively  to  the  production  of  raw  material,  and  the  English 
exclusively  to  manufactures,  on  the  ground  that  each  could 
purchase  of  the  other  what  it  would  then  need,  more  profitably 
than  it  could  produce  that  article  for  itself.  Let  us  suppose 
that  the  Americans  adopt  this  advice,  and  raise  nothing  but 
raw  material.  What  will  be  the  consequence  ? 

As  every  civilized  nation  must  consume  more  value  vested 
in  manufactured  goods  than  in  raw  material,  (without  reckon- 


466  INTERNATIONAL  EXCHANGES  I 

ing  tea,  coffee,  and  tropical  products,  which  must  be  brought 
from  abroad,)  it  is  evident  that  we  must  be  constantly  pressed 
to  purchase  from  foreign  countries  more  than  we  can  easily 
pay  for  by  selling  to  them  raw  material.  In  order,  then,  to 
enlarge  the  foreign  market  for  our  cotton,  tobacco,  and  flour, 

in  order  to  bring  them  within  the  reach  of  a  larger  class  of 

consumers,  —  we  must  offer  them  on  the  most  favorable  terms. 
We  must  offer  them  at  the  American  price,  (of  one  hundred- 
weight for  six  pounds  of  manufactures,)  rather  than  at  the 
foreign  price,  which  they  would  otherwise  naturally  assume, 
of  one  hundred-weight  for  ten  pounds.  At  this  last  price,  it 
may  be  assumed  that  we  could  dispose  of  only  one  thousand 
tons  of  the  raw  material;  and  for  this  amount  we  should 
procure  only  200,000  pounds  of  manufactured  goods ;  —  not 
enough  to  supply  our  wants.  But  in  order  to  obtain  more,  we 
must  be  able  to  sell  more ;  and  in  order  to  sell  more,  we  must 
offer  the  raw  material  at  a  lower  price,  so  as  to  enable  a  greater 
number  of  foreigners  to  purchase  it.  If  we  offer  it  at  the  rate 
of  six  pounds  to  the  hundred-weight,  we  might  be  able  to  sell, 
not  merely  one  thousand  tons,  but  ten  thousand ;  and  this, 
at  the  price  mentioned,  would  give  us  1,200,000  pounds  of 
manufactured  goods,  which  might  perhaps  be  sufficient.  The 
principle  is,  then,  that  whichever  nation  is  under  the  strongest 
temptation  or  necessity  to  buy  from  others, —  whichever  needs 
to  buy  more  value  than  it  can  readily  sell  of  its  own  products 
to  pay  for,  —  that  nation  labors  under  a  disadvantage  in  the 
traffic,  and  must  offer  its  own  commodities  at  the  lowest  pos- 
sible price. 

"  At  the  lowest  price  which  is  possible,"  we  say  ;  for  the 
theory  shows  clearly,  that  there  are  limits  beyond  which  the 
price  can  neither  be  elevated  nor  depressed.  We  cannot  sell 
for  less  than  six  pounds,  because  the  labor  and  capital  expend- 
ed in  producing  a  hundred-weight  of  raw  material  would,  with 
all  our  disadvantages  in  manufacturing,  enable  us  to  manufac- 
ture six  pounds  of  such  goods  for  ourselves.  Neither  can  we 
obtain  more  than  ten  pounds,  because  the  English  labor  and 
capital  bestowed  on  ten  pounds  of  these  goods  would  enable 
the  English,  in  spite  of  their  disadvantages  in  regard  to  raw 
produce,  to  raise  one  hundred-weight  of  raw  material  for 
themselves.  Within  these  limits,  then,  is  the  sphere  of  opera- 


THE  PROTECTIVE  SYSTEM.  467 

tion  of  a  protective  tariff;  beyond  them  is  the  sphere  of  free 
trade.  Prohibitory  duties  are  always  unwise ;  for  the  object 
is  to  check  consumption,  not  to  destroy  foreign  trade.  The 
purpose  of  a  protective  tariff  is  to  secure  to  each  nation  the 
use  of  its  own  natural  advantages ;  or  rather,  to  prevent  it 
from  throwing  these  natural  advantages  away,  by  too  assidu- 
ous and  exclusive  cultivation  of  them,  the  effect  of  which 
would  be,  that  the  other  arts  and  branches  of  industry  would 
perish  by  neglect.  An  analogy  may  here  be  traced  between 
the  true  policy  of  a  nation  in  developing  all  its  resources,  and 
the  true  system  of  education  for  cultivating  all  the  mental 
faculties  of  a  man.  One  faculty  of  a  child,  the  memory  or 
the  imagination,  may  be  developed  by  accidental  circum- 
stances to  an  inordinate  extent.  An  unwise  parent,  like  the 
injudicious  partisans  of  free  trade,  would  foster  and  enlarge 
this  inequality,  instead  of  striving  to  diminish  it ;  and  would 
thereby  not  only  leave  the  other  faculties  to  die  out  by  disuse, 
but  would  make  the  one  talent  preternaturally  developed  a 
curse  rather  than  a  blessing.  A  community  cannot  prosper 
by  devoting  all  its  energies  to  the  cultivation  of  but  one  of 
the  three  great  branches  of  industry.  Devoted  to  agriculture 
alone,  or  to  manufactures  alone,  or  to  commerce  alone,  it 
makes  no  difference ;  —  in  either  case,  it  will  have  but  one 
class  of  articles  to  sell,  while  it  will  have  two  classes  of  arti- 
cles to  purchase;  —  in  either  case,  it  will  have  a  greater  sur- 
plus of  one  kind  to  dispose  of,  than  other  nations  will  be  willing 
or  able  to  purchase,  except  at  the  lowest  possible  price ;  —  and 
to  sell  at  the  lowest  possible  price,  as  we  have  now  demon- 
strated, is  just  to  sacrifice  the  whole  of  the  natural  advantage 
with  which  we  are  endowed  by  Nature,  and  to  put  ourselves 
on  a  par  with  other  countries  in  this  respect,  while  we  are  be- 
low them  in  every  other  respect. 

On  this  point,  the  history  of  England  is  as  full  of  instruc- 
tion as  that  of  our  own  country.  The  English  peasantry  have 
been  driven  away  from  their  natural  pursuits  and  mode  of  life 
in  the  fields,  and  have  been  forced  to  become  operatives  in  the 
towns.  English  manufactures  have  thus  been  developed  to  a 
prodigious  extent;  and  the  consequence  is,  that  England  is 
importuning  every  government  in  the  world  to  throw  down 
its  barriers  of  protection,  and  to  receive  manufactured  goods  at 


468  INTERNATIONAL  EXCHANGES  : 

a  marvellously  cheap  price,  —  a  price  much  below  their  natu- 
ral cost  of  production,  if  English  labor  were  remunerated  at  a 
fair  rate.  But  it  is  not  thus  remunerated  ;  the  wages  of  Eng- 
lish operatives  have,  of  late  years,  been  reduced  to  the  point 
where  starvation  is  ever  imminent  ;  and  bewildered  by  the 
lamentable  consequences  of  this  state  of  things,  astonished  to 
find  general  misery  where  their  theory  of  free  trade  led  them 
to  expect  general  prosperity,  the  English  economists  have  had 
recourse  to  such  doctrines  as  those  of  Malthus  and  Ricardo  to 
explain  away  the  failure  of  their  prognostications,  and  have 
actually  discovered  that  all  the  evil  must  be  attributed  to  an 
inevitable  cause,  —  to  the  over-population  of  the  earth.  What 
has  been  the  fate  of  England  in  regard  to  manufactures,  may 
be  our  own  condition  in  respect  to  agriculture,  if  we  do  not 
become  wise  in  time. 

That  I  am  not  here  advocating  a  protective  policy  to  an  ex- 
tent which  will  impeach  the  truth  of  all  the  leading  doctrines 
of  Political  Economy,  as  that  science  is  usually  taught,  must 
appear  from  the  limitations  of  the  theory  which  have  been  al- 
ready laid  down,  and  from  the  fact  that  this  theory  is  frankly 
accepted  even  by  those  English  economists  who  are  the  stout- 
est advocates  of  the  general  doctrine  of  free  trade.  For  proof, 
I  quote  from  John  Stuart  Mill. 

"  If  it  be  asked,"  he  says,  "  what  country  draws  to  itself  the 
greatest  share  of  the  advantages  of  any  trade  it  carries  on,  the 
answer  is,  —  the  country  for  whose  productions  there  is  in 
other  countries  the  greatest  demand,  and  a  demand  the  most 
susceptible  of  increase  from  additional  cheapness.  In  so  far 
as  the  productions  of  any  country  possess  this  property,  the 
country  obtains  all  foreign  commodities  at  less  cost.  It  gets 
its  imports  cheaper,  the  greater  the  intensity  of  the  demand  in 
foreign  countries  for  its  exports.  It  also  gets  its  imports  cheap- 
er, the  less  the  extent  and  intensity  of  its  own  demand  for  them. 
TJie  market  is  cheapest  to  those  whose  demand  is  small.  A 
country  which  desires  few  foreign  productions,  and  only  a  lim- 
ited quantity,  while  its  own  commodities  are  in  great  request 
in  foreign  countries,  will  obtain  its  limited  imports  at  extremely 
small  cost,  —  that  is,  in  exchange  for  the  produce  of  a  very 
small  quantity  of  its  labor  and  capital."  * 

*  Mill's  Politioal  Economy,  Vol.  II.  p.  131. 


THE  PROTECTIVE  SYSTEM.  469 

Consequently,  he  argues,  "  the  opening  of  a  new  branch  of 
export  trade ;  or  an  increase  in  the  foreign  demand  for  our 
products,  either  by  the  natural  course  of  events,  or  .by  an  abro- 
gation of  duties ;  or  a  check  to  our  demand  for  foreign  commodi- 
ties by  the  laying  on  of  import  duties  at  home,  or  of  export  duties 
elsewhere ;  —  these,  and  all  other  events  of  similar  tendency, 
would  make  our  imports  no  longer  a  balance  for  our  exports ; 
and  the  countries  which  take  our  exports  would  be  obliged  to 
offer  then-  commodities  (specie  among  the  rest)  on  cheaper 
terms,  in  order  to  reestablish  the  equation  of  demand ;  and 
thus  we  should  obtain  money  cheaper,  and  acquire  a  generally 
higher  rate  of  prices.  Incidents  the  reverse  of  these  would  pro- 
duce effects  the  reverse,  —  would  reduce  prices."  * 

It  appears,  then,  that  it  is  even  more  for  the  interest  of 
American  planters  and  agriculturists,  than  of  the  manufacturers 
themselves,  that  duties  should  be  laid  on  the  importation  of 
foreign  manufactured  goods,  so  as  to  restrict  the  amount  of 
such  importation.  We  thus  purchase  our  imports  more 
cheaply,  or,  what  is  the  same  thing,  as  commodities  are  actu- 
ally bartered  for  commodities,  we  sell  our  exports  at  a  higher 
price.  The  effect  of  the  duty  is,  not  to  raise  the  price  of  the 
imported  articles,  but  to  cheapen  them,  the  duty  actually  fall- 
ing in  great  part  upon  the  foreign  manufacturer.  During  the 
year  ending  June  30,  1854,  for  instance,  we  sold  to  other  na- 
tions, cotton  to  the  amount  of  93  millions  of  dollars,  tobacco  to 
the  amount  of  10  millions,  and  vegetable  food  nearly  equalling 
66  millions ;  the  total  exports  of  the  produce  of  the  United 
States  that  year,  excluding  gold  and  silver  coin,  were  about  215 
millions.  Our  total  imports  retained  for  consumption  during 
the  same  period  (deducting  what  was  reexported)  amounted 
almost  exactly  to  276  millions.  The  difference  between  these 
two  sums,  61  millions,  being  evidently  too  much  to  be  attributed 
to  the  profits  of  trade  and  costs  of  transportation,  we  ran  in 
debt  for  a  considerable  portion  of  the  balance,  and  had  to  pay 
the  debt  by  exporting  over  38  millions  of  California  gold.  The 
average  duty  imposed  on  all  the  articles  that  pay  any  duty  is 
about  25  per  cent. 

Now  let  us  see  what  would  have  been  the  probable  effect  of 

*Jbid.,  p.  145. 

40 


470  INTERNATIONAL  EXCHANGES: 

doubling  the  duty  upon  all  the  imported  articles  which  come  hi 
competition  with  American  manufactures.  The  value  of  such 
articles  probably  did  not  exceed  100  millions ;  the  other  im- 
ports, amounting  to  176  millions,  are  of  such  commodities  — 
tea  coffee,  drugs,  raw  materials,  and  the  like  —  that  we  should 
be  obliged,  under  any  circumstances,  to  purchase  them  of  for- 
eigners. To  double  the  duty  on  the  former  articles  would 
probably  reduce  the  amount  imported  from  100  millions  to  50 
millions,  so  that  the  revenue  of  our  own  government  would 
not  be  affected  by  the  alteration.  But  England,  from  whom 
we  obtain  most  of  the  goods  which  come  in  competition  with 
our  home  manufactures,  would  still  need  to  obtain  from  us  as 
much  vegetable  food,  meat,  and  tobacco,  and  nearly  as  much 
cotton  and  California  gold,*  as  ever ;  and  her  sale  of  her  own 
manufactures  to  the  United  States  being  diminished  to  the  ex- 
tent of  50  millions,  she  would  be  obliged  to  offer  to  ah1  nations, 
the  United  States  included,  these  manufactures,  and  other  com- 
modities also,  at  lower  prices.  Compelled  to  seek  an  extension 
of  the  foreign  market,  or,  in  other  words,  to  create  an  increased 
demand  in  other  countries,  for  whatever  she  has  to  sell,  to  the 
extent  of  over  ten  millions  sterling,  she  must  submit  to  a  re- 
duction of  price,  which  will  bring  her  commodities  within  the 
reach  of  a  larger  class  of  consumers.  American  consumers,  for 
instance,  would  not  take  even  half  as  much  as  before,  if  the 
price  in  this  country  were  enhanced  to  the  full  extent  of  the 
additional  duty,  —  that  is,  25  per  cent.  England  would  have 
to  bear  probably  15  per  cent  of  this  duty,  or  to  reduce  her 
prices  in  this  proportion,  leaving  the  American  price  to  be  en- 
hanced 10  per  cent,  which  would  be  encouragement  enough  to 
set  additional  manufactories  in  motion  in  the  United  States, 
so  as  to  produce  at  home  the  50  millions'  worth  cut  off  from 
our  imports. 

Already,  then,  we  see  the  fallacy  of  the  oft-repeated  assertion 
by  the  advocates  of  free  trade,  that  a  protective  duty  raises  the 
price  both  of  the  home  commodity,  and  of  the  foreign  one 
which  continues  to  be  imported,  to  the  full  extent  of  that  duty. 

*  I  say,  nearly  as  much  gold  as  ever,  because  the  United  States,  having  become 
perhaps  the  greatest  gold-producing  country  on  earth,  must  continue  to  export  that 
metal,  and  other  countries  must  continue  to  receive  it  from  her,  till  money  and 
prices  are  equalized  all  over  the  commercial  world. 


THE  PROTECTIVE  SYSTEM.  471 

If  the  impost  be  not  so  great  as  to  be  virtually  prohibitive,  — 
in  which  case  we  admit  it  would  be  impolitic,  —  the  home 
price  cannot  be  increased  to  the  extent  of  more  than  one  half, 
seldom  more  than  two  fifths,  of  the  duty.  Everywhere  the  ine- 
quality in  the  distribution  of  wealth  is  such,  that  the  class  of 
persons  having  an  income,  for  instance,  of  $  2,500  a  year,  is 
not,  as  we  might  be  tempted  by  a  superficial  glance  at  the  sub- 
ject to  believe,  only  25  per  cent  less  numerous  than  the  class 
having  $  2,000  a  year,  but  is  probably  not  more  than  half  as 
great.  If,  then,  the  price  should  rise  to  the  full  extent  of  the 
duty,  say  25  per  cent,  the  total  consumption  would  not  be 
more  than  half  as  great,  as  only  those  would  buy  who  have  an 
income  at  least  one  fourth  larger  than  the  smallest  income  pos- 
sessed by  any  of  the  former  purchasers  ;  but  a  portion  of  what 
is  consumed  being  now  of  home  production,  the  importation 
of  the  foreign  article  would  fall  off  considerably  more  than  50 
per  cent. 

This  reasoning,  it  is  true,  applies  only  to  the  somewhat  finer 
and  more  costly  articles  of  manufacture,  for  which  alone  a  pro- 
tective duty  is  reeded.  In  respect  to  breadstuffs  and  other  ar- 
ticles of  prime  necessity,  we  have  already  seen  that  a  very  con- 
siderable enhancement  of  price  is  needed  in  order  materially 
to  lessen  the  consumption.  The  sale  of  the  cheaper  and  more 
common  products  of  manufacturing  industry,  also,  may  not  be 
much  checked  by  an  addition  of  20  or  30  per  cent  to  their  price, 
as  their  cost  forms  but  a  small  part  of  the  total  expenditure  of 
any  class  of  persons.  But  the  principle  holds  true  in  the  only 
cases  in  which  we  need  to  apply  it. 

Thus  far,  however,  it  would  seem  that  the  American  con- 
sumer is  injured  to  a  certain  extent,  being  compelled  to  pay  at 
least  10  per  cent  more  for  the  article,  whether  of  home  or  for- 
eign manufacture,  than  he  paid  before  the  additional  duty  of 
25  per  cent  was  imposed.  But  the  principles  now  established 
prove,  that  he  is  compensated  for  the  increase  of  price  in  this 
instance,  by  a  necessary  reduction  of  the  price  of  other  com- 
modities. In  order  to  pay  for  the  American  products  which 
she  must  obtain,  England  must  be  able  to  make  up,  in  other 
commodities,  for  the  10  millions  sterling  worth  of  her  manu- 
factures which  we  will  no  longer  take.  But  our  market  being 
already  fully  supplied  with  these  articles  at  their  present  prices, 


472  INTERNATIONAL  EXCHANGES: 

she  must  tempt  us  to  take  more  of  them  by  reducing  their 
price.  She  must  sell  her  manufactures  cheaper,  not  only  to 
the  United  States,  but  to  China,  Java,  Brazil,  and  Cuba,  and 
thus  obtain  more  tea,  coffee,  and  sugar,  which  she  can  offer  to 
us  at  rates  so  low  as  to  increase  our  consumption  of  them  to 
the  required  extent.  These  articles  being  in  universal  use,  the 
reduction  in  their  cost  to  us  will  be  more  than  a  compensation 
for  the  additional  10  per  cent  which  we  must  pay  for  cotton, 
wool,  and  iron  manufactures.  Our  domestic  manufactures 
being  thus  restored  to  a  prosperous  condition,  and  many  addi- 
tional hands  being  required,  as  well  as  more  capital,  to  prose- 
cute them,  the  competition  in  agriculture  will .  be  slackened, 
and  the  price  of  our  agricultural  exports  will  naturally  rise. 
Our  sale  of  raw  cotton  will  not  be  diminished,  because  the  re- 
duced price  of  cotton  manufactures  in  Europe  will  increase  the 
consumption  of  that  article  there  more  than  enough  to  make 
up  for  a  slight  reduction  of  the  quantity  sold  in  the  United 
States. 

The  statement  of  these  principles  may  seem  novel ;  but  a 
little  reflection  will  satisfy  us,  that  we  have  long  been  familiar 
with  the  operation  of  them  on  a  large  scale.  How  is  it  that 
England  has  been  able  to  extend  her  manufacturing  enterprise 
to  its  present  vast  dimensions,  except  by  reducing  the  price  of 
its  products  so  low  as  to  cut  off  by  competition  the  rival  man- 
ufactures of  every  country  in  Europe,  Asia,  and  America,  that 
has  not  been  wise  enough  to  foster  its  domestic  industry  by  a 
protective  tariff?  While  her  own  industry  and  skill  were  not 
developed  enough  to  enable  her  to  defy  rivalry,  she  maintained 
as  rigid  a  system  of  protective  and  prohibitive  duties  as  was 
established  in  any  country  on  earth.  One  of  the  just  com- 
plaints which  ultimately  produced  the  American  Revolution, 
was,  to  adopt  the  language  of  Lord  Chatham,  that  "  England 
should  not  suffer  her  colonies  to  manufacture  even  a  horseshoe 
for  themselves."  She  then  obtained  the  raw  products  of  her 
own  colonies  on  easy  terms,  by  prohibiting  them  from  selling 
to  any  other  customer  than  herself;  and  those  of  other  coun- 
tries she  bought  at  prices  almost  as  low,  by  carefully  keeping 
her  purchases  from  them  within  the  narrowest  possible  limits, 
so  that  they  were  compelled  to  sell  cheap  in  order  to  sell 
enough  to  pay  for  their  imports.  Afterwards,  when  so  much 


THE  PROTECTIVE  SYSTEM.  473 

capital  and  skill  were  embarked  in  her  manufactures  that  they 
no  longer  dreaded  competition,  her  protective  system  was  abol- 
ished ;  after  her  defensive  armor  was  no  longer  needed,  she 
put  it  off,  and  endeavored  to  persuade  other  nations,  whose 
education  in  skill  and  industry  had  hardly  begun,  to  do  the 
same,  consoling  them  for  the  consequent  ruin  of  their  domestic 
enterprises,  by  the  assurance  that  she  could  manufacture  for 
them  cheaper  than  they  could  manufacture  for  themselves. 
The  only  point  forgotten  in  this  argument  was,  that  their 
purchase  of  English  manufactures  would  be  thereby  so  much 
increased,  that  they  would  be  obliged  to  sell  their  own  raw 
products  on  the  lowest  possible  terms  in  order  to  pay  for  them. 
I  borrow  from  an  English  authority  a  clear  statement  of  the 
limitations  under  which  alone  the  theory  of  free  trade  is  appli- 
cable. "  If  all  the  countries  of  the  globe  were  actually,  or  were 
ready  to  become,  constituent  portions  of  one  and  the  same 
great  family,  the  theory  of  fhe  free-traders  might  seem  plau- 
sible. But  the  plain  truth  is,  that  the  whole  analogy  is  forced 
and  unnatural.  By  treating  the  human  race  as  one  great  fam- 
ily, we  are  not  following,  but  departing  from,  the  apparent 
design  of  Providence,  as  indicated  in  the  dispensations  which 
everywhere  present  themselves  to  our  observation.  In  these 
we  are  totally  unable  to  discover  any  trace  of  this  ideal  incor- 
poration. Separated  by  natural  and  denned  boundaries,  often 
by  broad  tracts  of  ocean ;  differing  even  in  physical  organiza- 
tion ;  inhabiting  portions  of  the  earth's  surface  varying  in  tem- 
perature from  the  fervid  heat  of  the  torrid  zone  to  the  almost 
unendurable  cold  of  the  arctic  reigons;  above  all,  absolutely 
unintelligible  to  each  other  by  variety  of  language ;  —  the  Deity 
seems  to  have  stamped  on  the  features  of  nature  and  of  hu- 
manity, in  unmistakable  characters,  that  nations  shall  remain 
separate  and  distinct,  each  pursuing,  under  the  restraints  only 
of  moral  obligations  and  just  laws,  its  own  separate  interests  ; 
and  thus,  in  beautiful  harmony  with  the  similar  arrangements 
among  individuals  of  the  same  nation,  each,  however  uncon- 
sciously, contributing  to  that  general  good  which  is  but  the 
aggregate  of  the  separate  good  of  its  parts."  * 

*  Quart.  Review,  No.  CLXXI.  p.  86.  It  would  be  easy  to  quote  many  similar  ad- 
missions made  by  those  who  supported  the  policy  of  Sir  Robert  Peel  in  abolishing  the 
English  corn  laws.  Thus,  the  Hon.  G.  Smythe,  in  a  speech  at  Canterbury  in  1847, 

40* 


474  INTERNATIONAL  EXCHANGES: 

The  situation  of  the  United  States  is  so  peculiar,  that  argu- 
ments drawn  from  European  experience  for  the  guidance  of 
our  conduct  are  apt  to  be  wholly  fallacious  and  unsound.  We 
can  more  profitably  go  for  a  lesson  to  the  other  side  of  the  hab- 
itable globe,  —  to  a  country  even  more  widely  separated  than 
we  are,  by  a  waste  of  ocean,  from  the  arts  and  industry  of 
England  and  her  European  rivals ;  —  I  mean,  to  British  India. 
There  we  find  a  deficiency  of  capital,  an  abundance  of  fertile 
territory,  a  consequent  surplus  of  agricultural  produce,  and  a 
lack  of  that  skill  in  manufacture  which  can  only  be  gained 
by  long  experience  under  a  strict  protective  policy,  such  as 
England  has  enjoyed  for  nearly  two  centuries  ;  —  all  these  cir- 
cumstances strongly  reminding  us  of  corresponding  features  in 
our  own  condition.  Now,  the  Governor-General  of  India,  in  a 
correspondence  with  the  East  India  Company  on  the  subject 
of  the  Dacca  weavers,  makes  this  statement :  —  "  Some  years 
ago,  the  East  India  Company  annually  received  of  the  produce 
of  the  looms  of  India  to  the  amount  of  six  to  eight  million 
pieces  of  cotton  goods.  The  demand  gradually  fell,  and  has 
now  ceased  altogether.  European  skill  and  machinery  have 
superseded  the  produce  of  India.  Cotton  piece-goods,  for  ages 
the  staple  manufacture  of  India,  seem  for  ever  lost ;  and  the 
present  suffering  to  numerous  classes  in  India  is  scarcely  to  be 
paralleled  in  the  history  of  commerce" 

I  have  introduced  this  example  especially  because  it  throws 
light  upon  another  reason,  already  urged  in  another  place  (pp. 
191,  192),  for  the  establishment  of  a  protective  policy,  in 
America  as  well  as  in  India ;  —  I  mean,  the  great  difference  in 
the  cost  of  transportation  between  raw  materials  and  manufac- 
tured goods,  which  operates  greatly  to  the  advantage  of  the 
country  producing  the  latter,  because  manufactures  have  much 
the  greater  value  in  the  smaller  weight  and  bulk.  Rice,  wheat, 
cotton,  and  sugar  are  among  what  might  be  called  the  greatest 
natural  exports  of  India,  as  they  are  produced  there  very 


remarked  :  "  I  cannot  quit  this  subject  of  Free  Trade  without  expressing  my  opinion 
on  its  abstract  principle.  I  by  no  means  hold  that  the  principle  of  Free  Trade  is 
absolutely  true,  or  that  it  is  of  universal  application.  If  I  were  an  American,  the 
citizen  of  a  young  country,  I  should  be  a  Protectionist.  If  I  were  a  Frenchman,  the 
citizen  of  an  old  country  with  its  industry  undeveloped,  I  should  equally  be  a  Pro- 
tectionist." 


THE  PROTECTIVE  SYSTEM.  475 

cheaply  in  great  abundance.  The  average  price  of  wheat  at 
Calcutta  is  less  than  fifty  cents  a  bushel ;  but  the  freight  and 
other  charges  of  transporting  that  bushel  to  England,  and  selling 
it  there,  amount  to  about  eighty  cents.  England,  therefore, 
though  she  has  abolished  her  corn  laws,  enjoys  a  virtual  pro- 
tective duty  against  wheat  from  India,  amounting  to  160  per 
cent.  The  cost  of  transporting  English  manufactured  goods  to 
India  cannot,  on  an  average,  exceed  40  per  cent  of  their  value. 
The  difference  between  these  two  rates,  amounting  to  120  per 
cent,  is,  of  course,  really  prohibitive  in  its  effects ;  and  India 
wheat  is  not  brought  to  England  at  all.  The  difference  in  the 
cost  of  transporting  raw  materials  and  manufactured  goods 
across  the  Atlantic  is  certainly  not  so  great  as  in  sending  them 
round  the  Cape  of  Good  Hope  ;  but  it  is  enough  to  give  a  very 
important  advantage  to  the  traffic  to  England.  Our  chief  arti- 
cle of  export,  raw  cotton,  is  a  very  bulky  one ;  and  even  bread- 
stuffs  and  tobacco  are  more  expensive,  both  for  land  and  sea 
carriage,  than  the  cheapest  manufactures  of  the  loom.  I  speak 
of  the  carriage  by  land  as  well  as  sea,  because  the  greater  part 
of  the  raw  material  that  we  export  is  raised  far  in  the  interior, 
and  the  cost  of  bringing  most  of  it  to  the  Atlantic  coast  far  ex- 
ceeds that  of  carrying  it  over  the  ocean.  On  the  other  hand, 
our  chief  articles  of  import  from  Great  Britain,  with  the  possible 
exception  of  pig  and  bar  iron,  are  of  the  finer  species  of  manu- 
facture, and  therefore  contain  great  value  within  little  weight 
and  bulk.  It  would  be  difficult,  if  not  impossible,  to  estimate 
the  average  charges  of  transportation  of  so  many  different  arti- 
cles ;  but  it  would  be  perfectly  safe  to  consider  the  difference 
as  twenty  per  cent  on  the  whole  value  of  the  goods  in  favor  of 
England  ;  that  is,  as  an  English  protective  tariff  to  that  extent. 
In  other  words,  if  we  send  a  million  of  dollars'  worth  of  raw 
material  to  England,  we  must  pay  thirty  per  cent  on  its  value 
for  carriage,  before  it  is  admitted ;  while,  on  a  million  of  dol- 
lars' worth  of  fine  manufactured  goods  received  in  exchange, 
the  English  have  to  pay  but  ten  per  cent.  Consequently,  on 
the  very  principles  of  free  trade,  which  means  nothing  but  trade 
with  equal  advantages  to  the  two  parties,  we  ought  to  levy  a 
general  protective  duty  of  twenty  per  cent. 

One  other  consideration  in  favor  of  what  may  be  called  the 
American  system  must  be  mentioned,  because  it  affords  an 


476  INTERNATIONAL  EXCHANGES  C 

answer  to  an  argument  frequently  and  strenuously  urged  on 
the  other  side.  It  is  said  that  a  protective  duty  raises  the  cost 
to  the  consumer,  not  only  of  those  goods  which  are  imported, 
and  which  therefore  pay  the  duty,  but  of  those  also  which  are 
manufactured  within  the  country,  and  sold  at  an  enhanced 
price,  because  they  are  in  a  great  measure  protected  against 
foreign  competition.  I  have  already  alluded  to  two  facts, 
which  do  away  with  most  of  the  force  of  this  argument ;  — 
namely,  first,  that  a  protective  duty,  being  designed  as  a  check 
to  injurious  fluctuations  of  price,  is  graduated  with  reference  to 
the  lowest  price  at  which  the  foreign  commodity  is  ever  sold, 
and  not  with  reference  to  the  average  price.  Thus,  a  duty  of 
thirty,  may  not  raise  the  average  price  more  than  fifteen  per 
cent,  and  this  last  may  be  the  whole  amount  of  real  protection 
that  the  American  manufacturer  needs  ;  but  to  secure  this  pro- 
tection at  all  times,  the  duty  must  be  fixed  at  thirty  per  cent, 
because  circumstances  may  sometimes  force  the  foreign  com- 
modity upon  the  market  at  a  price  fifteen  per  cent  below  its 
ordinary  value.  And  secondly,  it  has  just  been  shown  that  the 
English  manufacturer,  in  order  not  to  lose  altogether  his  hold 
upon  the  American  market  after  the  duty  is  imposed,  is  obliged 
to  lower  his  price,  so  that,  in  fact,  he  pays  from  one  half  to 
three  fifths  of  the  duty,  instead  of  throwing  the  whole  of  it 
upon  the  American  consumer. 

But  further,  this  expression  "  forcing  upon  the  market '' 
points  to  another  fact  of  frequent  occurrence  in  trade,  which 
demonstrates  the  necessity  of  placing  a  check  upon  excessive 
imports.  The  reaction  of  a  commercial  crisis  in  England, 
making  dealers  there  eager  to  get  rid  of  a  large  quantity  of 
goods  at  almost  any  price,  —  or  the  beginning  of  such  a  crisis 
in  America,  when  the  speculative  fever  tempts  importers  to  ac- 
cumulate stocks  to  a  ruinous  extent,  —  may  cause  a  glut  in  our 
market  of  many  commodities  at  once,  depressing  the  value  of 
the  whole  exchangeable  produce  of  the  country  to  a  degree  far 
beyond  the  proportion  which  the  stocks  of  those  commodities 
bear  to  the  aggregate  of  that  produce.  We  have  seen  that  the 
abstraction  of  a  third  part  of  the  ordinary  supply  may  double 
the  price,  or  fail  to  raise  it  more  than  one  sixth,  according  as 
the  article  is  one  of  prime  necessity,  or  one  which  people  can 
easily  do  without.  So  the  addition  of  a  third  to  the  ordinary 


THE  PROTECTIVE  SYSTEM-  477 

stock  of  goods  on  hand  may  sink  the  price,  not  merely  in  pro- 
portion to  that  increase,  but  to  one  half  of  its  former  amount. 
The  whole  stock,  then,  both  of  foreign  and  domestic  products, 
must  be  sold  at  this  ruinous  sacrifice. 

I  have  already  explained  one  important  exception  to  the 
general  rule,  that  the  effect  of  cheapening  commodities  is  to 
increase  the  sale  of  them,  by  bringing  them  within  the  reach 
of  a  larger  body  of  consumers  ;  and  this  exception  has  an  ob- 
vious bearing  upon  the  present  subject.  Mr.  Mill  very  fairly 
states  the  point  as  follows,  though  he  does  not  seem  to  be 
aware  of  the  whole  force  of  the  concession.  "  When  a  thing 
is  bought,  not  for  its  use,  but  its  costliness,  cheapness  is  no 
recommendation.  As  Sismondi  remarks,  the  consequence  of 
cheapening  articles  of  vanity  is,  not  that  less  is  expended  on 
such  things,  but  that  the  buyers  substitute  for  the  cheapened 
article  some  other  which  is  more  costly,  or  a  more  elaborate 
quality  of  the  same  thing  ;  and  as  the  inferior  quality  answered 
the  purpose  of  vanity  equally  well  when  it  was  equally  expen- 
sive, a  tax  on  the  article  would  really  be  paid  by  nobody  ;  it 
would  be  a  creation  of  public  revenue  by  which  nobody  would 
lose."  * 

Obviously,  then,  in  respect  to  all  articles  which  are  used  only 
for  purposes  of  ostentation  and  display,  the  only  strong  argu- 
ment against  a  protective  tariff,  that  it  operates  as  a  tax  upon 
consumers  by  slightly  increasing  the  prices  of  the  commodities 
on  which  a  duty  is  imposed,  ceases  to  have  any  weight  what- 
ever. If  the  duty  were  removed,  consumers  would  save  noth- 
ing, for  they  would  abandon  the  use  of  the  cheapened  com- 
modity, and  seek  out  one  of  higher  cost,  not  because  it  is  of 
superior  quality  or  convenience,  but  because  its  high  price  ren- 
ders the  possession  of  it  a  token  of  wealth.  If  silks  are  so 
high  in  price  that  fine  cottons  content  the  love  of  display,  the 
additional  amount  of  labor  required  for  the  production  of  silks 
is  saved.  An  expensive  cotton  fabric  gratifies  the  spirit  of 
ostentation,  of  rivalry,  of  showing  one's  self  as  well  off  as  one's 
neighbors,  just  as  effectually  as  a  cheap  silk.  Taxes  upon  this 
class  of  luxuries,  then,  cost  the  community  nothing- ;  the  proceeds 
of  such  taxes  are  an  absolute  saving.  Even  if  the  finest 

*  Mill's  Political  Economy,  Vol.  II.  p.  442. 


478  INTERNATIONAL  EXCHANGES  : 

American  cottons  were  fifty  per  cent  dearer  than  English 
goods  of  the  same  quality,  a  duty  of  fifty  per  cent  on  the  im- 
ported commodity  would  be  no  tax  upon  the  consumer.  With 
the  duty,  he  would  buy  the  American  or  the  English  article  at 
$  1.50  a  yard,  and  it  would  answer  his  only  purpose,  —  would 
fully  gratify  his  love  of  display.  Without  the  duty,  despising 
the  cheaper  article,  he  would  purchase  an  English  or  French 
silk  at  $  1.50  a  yard,  and  would  be  no  better  off  than  in  the 
other  case ;  while  the  government  would  lose  the  whole  pro- 
ceeds of  the  tax,  American  manufactories  would  be  stopped, 
and  American  workmen  thrown  out  of  employment. 

I  am  no  advocate  of  sumptuary  laws  for  their  own  sake. 
But  taxation  itself  being  essential  for  the  support  of  govern- 
ment, such  an  apportionment  of  the  indirect  taxes  among  va- 
rious commodities  as  will  discourage  idle,  wasteful,  and  luxu- 
rious consumption,  is  clearly  expedient  and  just.  For  the 
aggregate  amount  expended  all  over  the  country  for  any  arti- 
cle of  luxury  is  increased  by  diminution  of  its  price,  and  les- 
sened by  augmentation  of  that  price.  If,  for  instance,  the 
number  of  diamonds  should  be  so  much  increased,  that  the 
price  should  fall  one  half,  people  would  purchase  more  than 
twice  as  many  of  them.  There  would  then  be  no  real  saving 
to  the  community,  but  an  actual  loss ;  for  the  aggregate  ex- 
penditure of  the  country  in  diamonds  would  be  increased  by 
the  whole  amount  bought  by  those  who  should  be  more  than 
enough  to  make  up  twice  the  former  number  of  purchasers. 
On  the  other  hand,  double  the  price,  and  there  would  be  less 
than  half  the  former  number  of  purchasers,  and  consequently 
a  real  saving  to  the  community.  If,  then,  we  make  the  more 
costly  manufactures  for  ourselves,  instead  of  obtaining  them 
from  abroad,  their  price  will  be  somewhat  enhanced,  there  will 
be  a  smaller  aggregate  expenditure  upon  them,  the  purposes  of 
luxury  and  ostentation  will  be  equally  well  answered,  and  the 
prices  obtained  in  foreign  markets  for  our  exports  will  be  in- 
creased by  the  diminution  of  our  imports,  and  to  the  full  ex- 
tent of  that  diminution.  Silks,  very  fine  cottons  and  woollens, 
expensive  cutlery,  articles  of  virtu  and  bijouterie,  and  the  like, 
are  necessarily  consumed  unproductively  ;  we  gain  nothing, 
we  even  lose,  by  cheapening  them.  If  the  wages  of  labor  can 
be  kept  up  by  raising  the  prices  of  such  articles,  we  gain  all 
round. 


THE  PROTECTIVE  SYSTEM.  479 

But  our  view  of  this  subject  would  be  incomplete,  if  some 
notice  were  not  taken  of  the  common  arguments  against  lay- 
ing restraints  upon  importation  for  the  encouragement  of  do- 
mestic manufactures.  Nearly  all  of  them  may  be  summed  up 
in  the  often-quoted  maxims,  that,  as  a  community  is  made  up 
only  of  individuals,  what  is  most  for  the  interest  of  individuals 
is  also  best  for  the  community ;  that  individuals  better  than 
the  government  can  determine  what  is  most  for  their  own  ad- 
vantage ;  and  "  that  the  maxim  of  buying  in  the  cheapest 
market,  and  selling  in  the  dearest,  which  regulates  every  mer- 
chant in  his  individual  dealings,  is  strictly  applicable  as  the 
best  rule  for  the  trade  of  the  whole  nation." 

That  this  argument  may  be  pressed  too  far  is  very  evident ; 
for  if  individuals  were  always  the  best  judges  of  what  their 
own  interest  requires,  many  of  them  would  refuse  to  pay  any 
taxes  for  the  support  of  government,  and  nearly  all  would 
claim  a  large  reduction  of  the  taxes  which  are  severally  im- 
posed upon  them.  Comparatively  few  have  sagacity  and  fore- 
sight enough  to  perceive  for  themselves  the  truth,  however 
they  may  be  disposed  to  yield  a  passive  assent  to  it  from  cus- 
tom and  a  respect  for  the  authority  of  others,  that  government, 
which  is  throughout  a  system  of  repression  and  restraint,  exists 
only  for  the  common  good ;  that  in  its  administration,  it  is 
often  necessary  to  sacrifice  the  interests  of  individuals  to  the 
general  welfare  ;  that  private  property,  for  instance,  must  often 
be  taken  for  public  uses ;  that  sometimes  persons  must  be 
taken  away  from  their  own  occupations,  and  be  compelled  to 
serve  on  juries,  or  in  the  army  or  navy,  or  to  testify  in  courts 
of  justice,  or  to  expose  property  and  life  to  the  hazards  of  war, 
perhaps  of  a  war  which  they  consider  impolitic  or  unjust,  and 
to  do  a  thousand  other  things  which  they  regard  as  vexatious 
and  detrimental  to  their  private  concerns.  The  best  govern- 
ment rests  much  more  upon  prescription  and  the  tacit  assent 
yielded  only  from  the  force  of  habit,  than  upon  the  intelligent 
convictions  of  its  subjects.  No  one's  consent  is  asked,  as  soon 
as  he  arrives  at  years  of  discretion,  whether  he  will  submit  to 
the  laws  which  he  has  had  no  hand  in  making ;  his  submission 
is  taken  for  granted,  and  he  can  withhold  it  only  at  the  expense 
of  imprisonment  or  exile.  Peace  and  war  must  be  made  with- 
out consulting  him,  or  asking  how  they  will  affect  his  private 


480  INTERNATIONAL  EXCHANGES: 

welfare ;  often  the  best  excuse  that  can  be  offered  for  making 
either  is,  that  it  will  promote  the  interests  of  the  greater  num- 
ber, though  some  must  suffer. 

But  this  remark  is  too  general  to  meet  the  whole  force  of  the 
argument  for  free  trade,  and  is  introduced  here  only  to  show 
that  the  alleged  identity  of  individual  with  national  interests, 
upon  which  this  argument  is  based,  is  not  a  truth  of  universal 
application.  We  may  gain  a  better  view  of  the  applicability 
of  the  maxim  in  this  particular  case,  by  considering  one  of 
Adam  Smith's  ingenious  illustrations  of  it,  which  has  been  so 
frequently  cited  as  to  appear  almost  a  truism. 

"  To  give  the  monopoly  of  the  home  market,"  says  Smith, 
"  to  the  produce  of  domestic  industry,  in  any  particular  art  or 
manufacture,  is  in  some  measure  to  direct  private  people  in 
what  manner  they  ought  to  employ  their  capitals,  and  must, 
in  almost  all  cases,  be  either  a  useless  or  a  hurtful  regulation. 
If  the  produce  of  domestic  can  be  bought  there  as  cheaply  as 
that  of  foreign  industry,  the  regulation  is  evidently  useless.  If 
it  cannot,  it  must  generally  be  hurtful.  It  is  the  maxim  of 
every  prudent  master  of  a  family,  never  to  attempt  to  make 
at  home  what  it  will  cost  him  more  to  make  than  to  buy. 
The  tailor  does  not  attempt  to  make  his  own  shoes,  but  buys 
them  of  the  shoemaker.  The  shoemaker  does  not  attempt  to 
make  his  own  clothes,  but  employs  a  tailor.  The  farmer  at- 
tempts to  make  neither  the  one  nor  the  other,  but  employs 
those  different  artificers.  All  of  them  find  it  for  their  interest 
to  employ  their  whole  industry  in  a  way  in  which  they  may 
have  some  advantage  over  their  neighbors,  and  to  purchase 
with  a  part  of  its  produce,  or,  what  is  the  same  thing,  with  the 
price  of  a  part  of  it,  whatever  else  they  may  have  occasion  for. 
What  is  prudence  in  the  conduct  of  every  private  family,  can 
scarce  be  folly  in  that  of  a  great  kingdom."  * 

But  this  comparison  between  individuals  and  communities 
is  often  a  faulty  and  deceptive  one,  and  is  particularly  so  in 
this  case.  Certainly  it  would  be  unwise  in  an  individual  to 
be  his  own  weaver,  tailor,  carpenter,  and  blacksmith ;  he  would 
thus  lose  all  the  advantages  of  a  division  of  labor,  and  would 
not  become  skilled  in  any  department.  But  this  objection  does 

•  Wealth  of  Nations,  p.  200. 


THE  PROTECTIVE  SYSTEM.  481 

not  hold  in  the  case  of  a  community,  which  has  only  a  ficti- 
tious unity,  and  is  really  made  up  of  many  individuals,  who 
may  distribute  among  themselves  all  the  employments  which 
are  requisite  for  the  production  of  all  the  commodities  that  the 
society  needs.  No  one  person  is  thus  required  to  practise 
more  than  one  art,  and  the  division  of  labor  among  these  indi- 
viduals is  as  perfect,  as  if  the  same  number  of  trades  were  par- 
titioned out  among  so  many  distinct  communities.  Still 
more ;  as  communities  are  separated  from  each  other  often  by 
broad  tracts  of  sea  or  land,  should  each  one  confine  its  indus- 
try to  the  production  of  a  single  commodity,  and  purchase 
whatever  else  it  needs  from  rival  states,  all  its  articles  of  con- 
sumption but  one  would  come  to  it  burdened  with  a  consid- 
erable cost  of  transportation ;  and  the  sale  of  its  own  single 
product  everywhere  but  at  home  would  be  impeded  by  an 
addition  to  its  cost  from  the  same  cause.  All  the  advantages 
of  a  division  of  labor  result  from  a  separation  of  employments 
among  individuals,  and  become  disadvantages  in  the  case  of 
distinct  states,  counties,  and  even  towns.  To  one  who  is  a 
blacksmith,  it  is  no  help,  but  rather  a  hinderance,  that  his  next- 
door  neighbor  is  a  blacksmith  also ;  he  has  thus  a  competitor 
in  satisfying  the  wants  of  his  own  village,  where  every  me- 
chanic finds  his  best  and  most  profitable  customers ;  and  as 
blacksmiths'  work  is  heavy,  he  cannot  carry  his  wares  for  sale 
even  to  the  next  county  or  town  without  lessening  his  profits. 
The  inhabitants  of  every  country  town  understand  their  own 
interests  much  better  than  Adam  Smith  did.  Instead  of  form- 
ing themselves  into  a  settlement  composed  exclusively  of  arti- 
sans of  one  trade,  each  community  has  its  own  mason,  shoe- 
maker, carpenter,  shopkeeper,  lawyer,  doctor,  and  clergyman, 
and  is  thus  not  obliged  to  send  a  dozen  or  twenty  miles  in 
order  to  have  a  horse  shod,  a  chimney  built,  a  tooth  pulled,  or 
a  marriage  celebrated.*  A  Yankee  farmer  with  half  a  dozen 

*  I  am  not  detailing  imaginary  cases.  Mr.  Rae,  who  lived  a  long  time  in  Canada, 
says :  "  I  knew  two  brothers  whose  farms  or  estates  lay  in  one  of  the  interior  districts 
of  that  country,  in  the  midst  of  its  forests,  and  consequently  at  a  considerable  dis- 
tance, perhaps  twenty  or  thirty  miles,  from  artificers  of  any  description.  Having  each 
of  them  large  families  and  productive  farms,  they  had  occasion  for  the  services  of 
various  artificers,  and  had  the  means  of  paying  them.  Nevertheless,  they  very  rarely 
employed  them ;  almost  every  article  they  required  was  made  by  some  one  of  the  two 
families.  As  they  were  prudent  and  sagacious  men,  of  which  they  produced  the  best 

41 


482  INTERNATIONAL  EXCHANGES: 

stout  sons,  acts  upon  the  same  principle,  in  not  educating  them 
all  to  his  own  employment,  but  making  a  mechanic  of  one,  a 
merchant  of  another,  a  sailor  of  a  third,  sending  a  fourth  to 
college,  and  keeping  only  one  at  home  to  be  his  own  successor 
upon  the  farm.  As  all  occupations  are  precarious,  he  knows 
that,  by  this  course,  he  multiplies  the  chances  of  success,  or 
reduces  the  chances  of  failure,  for  the  whole  family,  besides 
suiting  each  member  of  it  with  an  employment  best  adapted 
to  his  peculiar  powers  and  inclination. 

Adam  Smith's  illustrations  are  fallacious,  because  they  are 
drawn  from  extreme  cases,  in  regard  to  which  no  one  would 
think  of  denying  the  correctness  of  the  maxim,  and  are  then 
applied  as  if  it  were  correct  in  every  instance,  though  the  uni- 
versality of  the  principle  is  the  only  point  in  question.  Thus 
he  argues:  "  By  means  of  glasses,  hot-beds,  and  hot-walls,  very 
good  grapes  can  be  raised  in  Scotland,  and  very  good  wine, 
too,  can  be  made  of  them,  at  about  thirty  times  the  expense 
for  which  at  least  equally  good  can  be  brought  from  foreign 
countries.  Would  it  be  a  reasonable  law  to  prohibit  the  im- 
portation of  all  foreign  wines,  merely  to  encourage  the  making 


evidence  in  the  general  success  of  their  undertakings,  and  the  prosperity  of  the  settle- 
ment of  which  they  were  at  the  head,  I  think  it  likely  that,  in  this  also,  they  had 
turned  their  means  to  the  best  account.  In  fact,  as  they  who  are  familiar  with  the 
details  of  beginning  settlements  in  North  America  will  admit,  by  this  plan  they  in 
a  great  measure  obviated  the  two  chief  drawbacks  on  the  prosperity  of  new  and  re- 
mote settlements,  —  the  excessive  dearness  of  every  article  not  produced  there,  from 
the  great  expense  attending  the  transport  of  the  raw  produce  and  retransport  of  the 
manufactured  goods,  and  the  serious  inconvenience  arising  from  the  difficulty,  in  such 
situations,  of  supplying,  when  necessary,  unforeseen  but  pressing  wants. 

"  Among  other  things  which  they  got  made  on  their  own  farms  were  boots,  shoes, 
and  leather.  That  they  might  get  this  done,  they  were  at  the  pains  and  expense  of 
sending  one  of  the  young  men  to  some  distance,  to  make  himself  sufficiently  master 
of  those  trades  for  their  purpose.  They  thought,  however,  that  the  cost  they  were 
thus  put  to  was  repaid,  thrice  over,  by  the  saving  of  time  and  expense  which  it  ef- 
fected for  them,  in  enabling  them  to  make,  out  of  leather  which  cost  them  very  little, 
numerous  articles  that  they  must  otherwise  have  been  constantly  sending  for  to  a 
great  distance,  by  roads  that  were  almost  impracticable  a  great  part  of  the  season." 

A  Eree-Trader,  continues  Mr.  Rae,  would  certainly  have  remarked  to  these  two 
heads  of  families :  "  You  are  in  want,  you  say,  of  some  pairs  of  shoes ;  surely,  then, 
it  is  best  for  you  to  purchase  them  at  the  place  where  you  can  get  them  cheapest. 
But  by  the  plan  you  are  taking,  of  going  to  a  great  expense  to  have  them  made  at 
home,  they  will  certainly  cost  you  more  when  made  there,  than  if  bought  at  the 
place  where  you  have  hitherto  purchased  shoes." 

Any  one  can  judge  whether  such  advice  would  have  been  sound. 


THE  PROTECTIVE  SYSTEM.  483 

of  claret  and  burgundy  in  Scotland  ?  "  Certainly  not.  And 
it  would  also  be  manifestly  absurd  to  attempt  to  raise  tea, 
coffee,  pineapples,  and  other  tropical  products,  in  New  Eng- 
land. We  here  labor  under  natural  disabilities,  arising  from 
peculiarities  of  soil  and  climate,  which  time  and  practice  can 
never  remove  or  essentially  diminish.  But  Americans  can 
profitably  raise  and  manufacture  iron,  steel,  wool,  cotton,  flax, 
and  silk,  for  the  production  and  fashioning  of  which  we  have 
as  great  advantages  as  the  English,  and  even  greater,  skill  and 
capital  alone  excepted.  We  can  therefore  profitably  spend 
time,  labor,  and  money  in  the  acquisition  of  that  skill  and  cap- 
ital ;  that  is,  we  can  profitably  submit,  for  a  certain  number  of 
years,  to  an  additional  tax  for  this  purpose,  appearing  in  the 
additional  price  which  we  must  for  a  while  pay  for  the  domes- 
tic products. 

We  may  turn  Adam  Smith's  favorite  mode  of  illustration 
against  himself,  by  asking  if  it  be  not  as  reasonable  for  a  na- 
tion, as  it  confessedly  is  for  an  individual,  to  enter  upon  a  course 
of  education,  or  serve  an  apprenticeship, — though,  during  the 
period  of  discipline,  the  gains  will  be  small,  the  labor  severe, 
and  perhaps  the  expenses  heavy,  —  for  the  purpose  of  acquir- 
ing an  art  or  handicraft  which  may  afterwards  be  exercised 
with  great  profit.  We  suppose  that  the  art  is  one  for  which 
the  individual  or  the  nation  is  sufficiently  qualified  by  nature, 
so  that  merely  the  tact  and  dexterity  which  can  only  be  ac- 
quired by  practice  are  wanting.  The  common  answer  of  the 
advocates  of  free  trade  to  this  question,  'that  when  the 
proper  time  has  arrived,  and  sufficient  capital  has  been  accu- 
mulated, manufactures  will  introduce  themselves,  without  the 
aid  of  protective  duties,'  is  evasive  and  insufficient.  It  goes 
upon  the  supposition,  that  want  of  capital  is  the  only  obstacle 
to  the  immediate  commencement  of  manufacturing  enterprise, 
whereas  skill  is  also  requisite ;  capital,  we  admit,  may  be  accu- 
mulated in  agriculture  and  other  pursuits ;  but  skill  can  be  ac- 
quired only  by  actual  experiments  in  manufacture,  and  those 
experiments  can  be  tried  only  at  considerable  sacrifice.  Indi- 
viduals cannot  be  expected  to  submit  to  these  sacrifices,  when 
the  results  of  the  experiment,  if  successful,  will  not  accrue  to 
their  exclusive  advantage,  but  will  be  open  to  all.  In  truth, 
the  acquisition  of  manufacturing  skill  is  a  national  advan- 


484  INTERNATIONAL  EXCHANGES  : 

tage,  though  it  invariably  occasions  a  loss  to  the  individual 
who,  first  in  his  nation,  attempts  to  acquire  it ;  it  is  therefore 
justly  paid  for  at  the  national  expense,  or  by  a  protective  duty, 
which  insures  the  beginners  for  a  limited  time  against  over- 
whelming competition  from  abroad. 

Even  in  Great  Britain,  where  free  trade  may  now  be  said 
to  be  the  fashionable  doctrine,  though  it  has  become  so  only 
within  the  last  fifteen  years,  and  in  every  other  civilized  nation, 
these  principles  are  carried  into  practical  application  through 
the  encouragement  afforded  to  authors  and  inventors,  by  se- 
curing to  them  for  a  limited  period  the  exclusive  right  to  sell 
their  respective  writings  and  discoveries.  Patents  and  copy- 
rights, which  no  one  thinks  it  improper  to  grant,  are  signal 
instances  of  the  successful  application  of  the  principles  of  the 
protective  system.  They  are  strict  monopolies,  no  one  but  the 
author  or  inventor,  and  his  agents,  being  allowed  to  manufac- 
ture or  sell  the  particular  book  or  machine  which  is  thus  pro- 
tected. Consequently,  they  are  prohibitive  rather  than  pro- 
tective duties ;  any  price  can  be  set  upon  the  articles  which  the 
owner  of  the  patent  or  copyright  sees  fit  to  demand.  And  the 
public  cheerfully  pay  the  addition  thus  made  to  the  natural 
cost  of  the  commodity,  knowing  that,  without  such  encourage- 
ment, few  good  books  would  be  written  and  few  useful  ma- 
chines invented,  and  that,  at  the  expiration  of  a  limited  time, 
(in  England  and  the  United  States,  fourteen  years  for  a  patent 
and  forty-two  years  for  a  copyright,)  the  right  to  make  and 
vend  the  work  will  become  general,  and  the  community  will 
then  be  the  richer  by  the  whole  value  of  the  original  proprietor's 
genius  and  labor.  But  he  who  first  introduces  a  particular  art 
or  manufacture  into  a  country  is  as  great  a  public  benefactor, 
as  one  who  subsequently  invents  a  new  process  or  a  new  ma- 
chine for  executing  the  work  at  less  cost.  In  fact,  it  is  only 
through  the  enterprise  of  the  former  that  the  latter  acquires  a 
field  and  an  occasion  for  the  exercise  of  his  inventive  genius. 
To  the  capitalists  who  built  the  city  of  Lowell,  is  fairly  attrib- 
utable much  of  the  merit  of  the  inventions  which  have  been 
made  in  it,  or  have  there  first  been  reduced  to  practice ;  and 
these  are  probably  more  numerous  and  valuable  than  have  been 
made  within  the  same  time  in  any  manufacturing  city  in  the 
world.  According  to  the  census  of  1850,  the  introduction  of 


THE  PROTECTIVE  SYSTEM.  485 

the  cotton  manufacture  into  the  United  States  has  given  em- 
ployment to  nearly  100,000  persons,  and  that  of  iron  to  more 
than  60,000.  What  single  invention  made  within  the  limits 
of  this  country  has  had  equally  important  results,  or  has  been 
carried  out  at  equal  hazard  and  sacrifice  ? 

The  reasonableness  of  granting  patent  rights  and  copyrights 
is  thus  frankly  admitted  by  an  able  advocate  of  free  trade, 
Mr.  J.  S.  Mill.  "  The  condemnation  of  monopolies,"  he  says, 
"  ought  not  to  extend  to  patents,  by  which  the  originator  of  an 
improved  process  is  permitted  to  enjoy,  for  a  limited  period, 
the  exclusive  privilege  of  using  his  own  improvement.  This 
is  not  making  the  commodity  dear  for  his  benefit,  but  merely 
postponing  a  part  of  the  increased  cheapness  which  the  public 
owe  to  the  inventor,  in  order  to  compensate  and  reward  him 
for  the  service.  That  he  ought  to  be  both  compensated  and 
rewarded  for  it  will  not  be  denied ;  and  also,  that  if  all  were 
at  once  allowed  to  avail  themselves  of  his  ingenuity,  without 
having  shared  the  labors  or  the  expenses  which  he  had  to  incur 
in  bringing  his  idea  into  a  practical  shape,  either  such  expenses 
and  labors  would  be  undergone  by  nobody,  except  by  very 
opulent  and  very  public-spirited  persons,  or  the  state  must  put 
a  value  on  the  service  rendered  by  an  inventor,  and  make  him 
a  pecuniary  grant.  This  has  been  done  in  some  instances, 
[as  when  Parliament  offered  a  reward  of  £  20,000  for  a  method 
of  finding  a  ship's  longitude  at  sea],  and  may  be  done  without 
inconvenience  in  cases  of  very  conspicuous  public  benefit ;  but 
in  general,  an  exclusive  privilege  of  temporary  duration  is  pref- 
erable, because  it  leaves  nothing  to  any  one's  discretion,  be- 
cause the  reward  conferred  by  it  depends  upon  the  invention's 
being  found  useful,  and  the  greater  the  usefulness  the  greater 
the  reward,  and  because  it  is  paid  by  the  very  persons  to  whom 
the  service  is  rendered,  the  consumers  of  the  commodity.* 

Having  conceded  thus  much,  Mr.  Mill  finds  himself  obliged 
by  consistency  of  reasoning  to  make  the  following  additional 
admission,  which  really  covers  the  whole  ground  usually 
claimed  by  the  advocates  of  a  protective  system  in  the  United 
States.  "  The  only  case,"  he  says,  "  in  which,  on  mere  princi- 
ples of  Political  Economy,  protecting  duties  can  be  defensible, 

*  Mill's  Political  Economy,  Vol.  II.  p.  497. 

41* 


486  INTERNATIONAL  EXCHANGES  : 

is  when  they  are  imposed  temporarily,  (especially  in  a  young 
and  rising  nation,)  in  hopes  of  naturalizing  a  foreign  industry 
in  itself  perfectly  suitable  to  the  circumstances  of  the  country. 
The  superiority  of  one  country  over  another  in  a  branch  of 
production  often  arises  only  from  having  begun  it  sooner. 
There  may  be  no  inherent  advantage  on  one  part,  or  disadvan- 
tage on  the  other,  but  only  a  present  superiority  of  acquired 
skill  and  experience.  A  country  which  has  this  skill  and  ex- 
perience yet  to  acquire,  may  in  other  respects  be  better  adapted 
to  the  production  than  those  which  were  earlier  in  the  field ; 
and  besides,  it  is  a  just  remark,  that  nothing  has  a  greater  ten- 
dency to  promote  improvements  in  any  branch  of  production, 
than  its  trial  under  a  new  set  of  conditions.  But  it  cannot  be 
expected  that  individuals  should,  at  their  own  risk,  or  rather  to 
their  certain  loss,  introduce  a  new  manufacture,  and  bear  the 
burden  of  carrying  it  on,  until  the  producers  have  been  edu- 
cated up  to  the  level  of  those  with  whom  the  processes  are  tra- 
ditional. A  protecting  duty,  continued  for  a  reasonable  time, 
will  sometimes  be  the  least  inconvenient  mode  in  which  the 
nation  can  tax  itself  for  the  support  of  such  an  experiment."  * 
Now  with  reference  to  the  great  manufactures  of  cotton, 
wool,  iron,  flax,  and  silk,  no  one  affirms  that  Great  Britain  has 
any  natural  and  inherent  advantages  for  prosecuting  them 
which  are  not  enjoyed,  in  an  equal  or  greater  degree,  by  the 
people  of  this  country.  The  English  have  "  only  a  present  su- 
periority of  acquired  skill  and  experience,"  resulting  from  the 
fact,  that,  in  some  of  these  branches,  of  production,  they  had 
over  two  centuries  the  start  of  us,  and  in  all  the  others,  they 
had  been  at  least  fifty  years  in  the  field  before  manufacturing 
enterprise  began  in  the  United  States.  Even  their  larger  com- 
mand of  capital  is  needed  only  for  the  purpose  of  supplying 
foreign  markets,  the  resources  of  our  countrymen  in  this  respect 
being  fully  adequate  for  the  home  supply,  and  the  exclusive 
control  of  the  home  market  is  all  that  can  be  given  by  protec- 
tive duties.  We  have  vastly  larger  supplies  of  iron  ore  and 
coal,  and  at  least  equal  facilities  for  raising  wool,  flax,  and  silk. 
Cheap  land  and  abundant  water-power  are  also  important  nat- 
ural auxiliaries  of  manufacturing  industry  in  this  country. 

*#Kf,pp.487,488. 


THE  PROTECTIVE  SYSTEM.  487 

In  respect  to  the  cotton  manufacture,  we  enjoy  an  obvious 
natural  advantage  over  Great  Britain,  as  the  raw  material  must 
be  exported  to  that  country,  and  then  brought  back  again  in  the 
manufactured  state,  and  sold  here  at  a  cost  enhanced  by  the 
expense  of  twice  carrying  it  across  the  ocean ;  here,  it  may  be 
spun  and  woven  on  the  spot  where  produced.  For  the  coarser 
cottons,  also,  our  period  of  apprenticeship  in  the  art  of  pro- 
ducing them  is  finished ;  we  can  export  them,  as  already  men- 
tioned, and  undersell  the  English  in  all  foreign  markets.  This 
branch  of  industry  was  first  introduced  into  the  United  States 
under  the  protection  afforded  by  the  war  of  1812  - 15,  when, 
our  ports  being  virtually  closed  by  blockade,  the  manufacturer 
really  had  a  monopoly  of  the  home  market.  After  the  peace, 
as  it  was  apparent  that  the  infant  manufacture  would  be  en- 
tirely destroyed  by  foreign  competition,  Congress  passed  the 
tariff"  of  1816,  which  imposed  a  duty  of  twenty-five  per  cent  on 
all  cotton  fabrics,  requiring  also  that  they  should  be  taken  at  a 
minimum  valuation  of  twenty-five  cents  a  square  yard.  By  the 
acts  of  1824  and  1828,  this  minimum  valuation  was  advanced, 
first  to  thirty,  and  then  to  thirty-five  cents  the  square  yard,  and 
so  continued  with  little  modification  till  1834,  when  the  reduc- 
tion of  the  duty  commenced.  But  before  the  tariff  of  1842 
was  enacted,  the  cheaper  cottons  had  ceased  to  need  any  pro- 
tection, and  began  to  be  exported.  In  the  course  of  only 
thirty  years,  the  infant  manufacture  had  grown  to  maturity, 
and  ceased  to  need  the  aid  of  government.  What  is  more, 
the  same  fabrics  which,  thirty  years  ago,  were  held  at  a  mini- 
mum valuation  of  thirty-five  cents  the  square  yard,  are  now 
sold  at  from  five  to  eight  cents,  and  the  annual  exports  of  them 
in  1853  amounted  to  nearly  nine  millions  of  dollars.  There  is 
every  reason  to  believe,  that  an  equally  efficient  protection, 
rendered  for  an  equal  period,  to  the  manufactures  of  wool,  flax, 
and  iron,  would  produce  a  similar  effect.  These  great  branches 
of  industry,  also,  if  carefully  nursed  during  the  period  of  their 
growth,  might  subsequently  repay  the  country  tenfold  the  cost 
of  their  temporary  protection. 

Against  the  favorite  dogma  of  Adam  Smith  and  his  follow- 
ers, that  individual  and  national  interests  are  identical,  I  have 
already  quoted  the  decisive  remark  of  Mr.  Rae,  that  "  individ- 
uals grow  rich  by  the  acquisition  of  wealth  previously  existing ; 


488  INTERNATIONAL  EXCHANGES  : 

nations,  by  the  creation  of  wealth  that  did  not  before  exist" 
Laws  which  simply  permit  private  persons  to  amass  wealth, 
or  which  favor  the  aggregation  of  property  in  a  few  hands, 
without  opening  any  new  sources  of  national  wealth,  —  as  by 
favoring  invention  and  discovery,  and  introducing  new  arts 
and  new  processes  in  those  formerly  established,  —  are  posi- 
tively injurious.  There  has  been  an  immense  emigration  from 
Great  Britain  and  Ireland  during  the  last  eight  years,  and  it 
has  doubtless  been  much  to  the  advantage  of  those  who  have 
joined  in  it ;  but  who  can  question  that  their  removal  has  been 
a  serious  loss  to  the  country  which  they  have  abandoned,  and 
if  the  drain  should  continue,  and  even  increase,  as  it  has  done, 
that  it  would  dry  up  all  the  sources  of  English  strength  and 
prosperity.  Yet  it  is  the  opinion  of  the  wisest  English  states- 
men and  economists,  that  nearly  all  the  sufferings  of  Ireland, 
which  have  led  to  this  unparalleled  exodus  of  her  people, 
might  have  been  avoided  if  other  manufactures  than  that  of 
linen  could  have  been  established  there,  so  as  to  provide  em- 
ployment for  all  classes  of  the  population.  But  Irish  manu- 
factures, unluckily,  with  the  single  exception  that  has  been 
mentioned,  are  of  later  date  than  those  of  England,  and,  with- 
out the  shield  of  a  protective  tariff,  have  never  been  able  to 
advance  beyond  a  stage  of  sickly  infancy.  Ireland  has  been 
reserved  as  a  market  for  English  manufactures,  and  con- 
demned to  pay  for  them  in  agricultural  products,  while  her 
own  children  were  starving.  Her  present  weakness  and  mis- 
ery may  justly  be  regarded  as  a  consequence  of  free  trade  with 
her  over-powerful  neighbor. 

"  Invention,"  says  Mr.  Rae,  "  is  the  only  power  on  earth 
that  can  be  said  to  create.  It  enters  as  an  essential  element 
into  the  process  of  the  increase  of  national  wealth,  because 
that  process  is  a  creation,  not  an  acquisition.  It  does  not  ne- 
cessarily enter  into  the  process  of  the  increase  of  individual 
wealth,  because  that  may  be  simply  an  acquisition,  not  a  cre- 
ation. The  assumption,  therefore,  that  the  two  processes  are 
perfectly  similar,  is  incorrect."  Hence,  the  most  frequent 
cause  of  the  increase  of  national  wealth  is  the  increase  of  the 
skill,  dexterity,  and  judgment,  and  of  the  mechanical  contri- 
vances, with  which  the  national  labor  is  applied.  Poland  is 
not  so  rich  a  country  as  England,  not  on  account  of  any  defi- 


THE  PROTECTIVE  SYSTEM.  489 

ciency  of  labor,  for  a  Polish  or  Russian  serf  probably  works  as 
hard,  and  as  many  hours  in  the  day,  as  an  English  artisan ; 
but  he  does  not  work  to  so  good  purpose.  His  toil,  being 
that  of  mere  tillage,  taxes  his  muscles,  but  not  his  brains. 
"  When  we  are  told  that  an  individual  this  year  employs  in 
agriculture  double  the  capital  which  he  employed  last  year, 
the  conception  which  most  readily  presents  itself  to  us  is,  that 
he  now  farms  double  the  land  which  he  then  farmed,  owns 
double  the  number  of  horses,  cattle,  farming  utensils,  &c., 
and  has  double  the  number  of  barns  and  other  necessary  build- 
ings. When  we  are  told  that  a  country  has  double  the  agri- 
cultural capital  which  it  had  a  century  ago,  we  cannot,  of 
course,  conceive  that  its  farms  are  double  the  extent  they  then 
were ;  neither  do  we  conceive  that  its  farmers  have  simply 
double  the  number  of  barns  and  other  buildings,  of  cattle, 
ploughs,  harrows,  and  other  farming  utensils,  which  they  then 
had.  We  conceive  a  change  in  the  mode  in  which  its  fields 
are  laid  out  and  tilled ;  in  the  form  and  qualities  of  the  stock ; 
in  the  construction  of  all  the  implements  of  husbandry ;  in  the 
size  and  arrangement  of  the  barns  and  other  buildings ;  and 
that,  through  these  changes,  the  national  agricultural  labor 
produces  at  least  double  the  products  it  formerly  did.  It  is 
this  change  necessarily  involved  in  our  conception  of  the  pro- 
cess by  which  nations  increase  their  capitals,  and  not  necessa- 
rily involved  in  the  process  by  which  individuals  increase  their 
capitals,  that  constitutes  the  difference  between  them."  * 

This  view  is  illustrated  by  the  account  already  given  (Chap- 
ter XVII.)  of  the  necessary  restrictions  upon  the  growth  of  cap- 
ital arising  from  the  limitations  of  the  field  of  employment. 
Even  according  to  Ricardo's  theory  of  rent  and  profits,  the  great 
preventive  of  a  constant  deterioration  of  the  condition  of  society, 
arising  from  the  diminished  fertility  of  the  soils  to  which  it  is 
compelled  successively  to  resort,  and  from  the  consequent  fall 
of  profits,  is  the  progress  of  improvement ;  and  it  matters  not 
whether  this  improvement  takes  place  through  the  invention 
of  new  processes  and  new  machines,  or  the  introduction  of 
new  arts  and  manufactures  from  abroad,  the  condition  of  the 
former  being  the  offer  of  satisfactory  rewards  to  the  inventors, 

•  Rae's  New  Principles  of  Political.  Economy,  p.  13. 


490  INTERNATIONAL  EXCHANGES: 

and  of  the  latter,  a  temporary  safeguard  of  the  introducers 
against  foreign  rivalry  by  a  protective  tariff.  Here  again  I 
borrow  the  substance  of  an  illustration  from  Mr.  Rae.  We 
are  much  richer  than  our  fathers,  because  we  have  threshing- 
machines  where  they  had  only  flails,  power-looms  where  they 
had  only  hand-looms,  reaping-machines  where  they  had  only 
sickles,  &c.  Now  the  wealth  which  can  be  accumulated  in 
the  form  of  flails,  hand-looms,  and  sickles,  is  very  limited, 
since  no  more  of  any  of  these  implements  can  be  profitably 
manufactured  than  are  wanted  for  specific  and  limited  pur- 
poses. On  the  other  hand,  the  wealth  which  can  exist  in  the 
form  of  threshing-machines,  power-looms,  and  reaping-ma- 
chines, is  very  considerable;  —  not  unlimited,  it  is  true,  but 
vastly  greater  than  the  capital  formerly  vested  in  the  simpler 
implements.  Hence  the  efforts  of  the  legislature  can  be  profit- 
ably directed  towards  promoting  the  progress  of  science  and 
art,  and  favoring  the  introduction  of  manufactures,  which  can 
be  prosecuted  only  by  complex  and  costly  machinery.  Gov- 
ernment efforts  are  needed  for  these  ends,  because,  as  a  gen- 
eral rule,  inventors  and  pioneers  in  new  enterprises  are  poorly 
compensated  by  the  public. 

"  Individuals  as  well  as  nations,"  argues  the  same  author, 
"  acquire  wealth  from  other  sources  than  mere  saving  of  reve- 
nue ;  skill  is  as  necessary,  and  consequently  as  valuable,  a  co- 
operator  with  the  industry  of  both,  as  either  capital  or  parsi- 
mony ;  and  therefore  the  expenditure  which  either  may  be 
called  on  to  make,  to  attain  the  requisite  skill,  is  very  well  be- 
stowed. But  though  skill  is  valuable  both  to  nations  and  to 
individuals,  there  are  many  circumstances  that  render  it  more 
so  to  the  former  than  to  the  latter.  In  the  first  place,  it  is 
more  durable."  The  skill  of  an  individual  dies  with  him, 
while  that  of  the  community  endures  as  a  permanent  posses- 
sion. "  If  it  be  worth  while  paying  a  considerable  apprentice 
fee  for  the  acquisition  of  an  art  which  can  be  probably  exer- 
cised only  for  twenty  or  thirty  years,  it  must  be  better  worth 
while  to  pay  for  one,  the  advantages  derived  from  the  posses- 
sion of  which  may  be  retained  for  hundreds  or  thousands  of 
years."  Again,  the  future  skilled  labor  of  an  individual  can- 
not be  mortgaged  or  sold,  except  the  laborer  sell  himself  along 
with  it,  —  a  transaction  which  is  not  sanctioned  in  modern 


THE  PROTECTIVE  SYSTEM.  491 

times.  "  On  the  contrary,  any  portion  of  the  future  revenue 
yielded  by  the  skilled  industry  of  a  nation  may  be  sold,  and 
consequently  an  addition  to  the  national  skill  gives  a  propor- 
tional addition  to  the  command  of  national  resources,  to  meet 
any  sudden  emergency.  The  produce  of  the  general  industry 
of  Great  Britain  stands  mortgaged  for  a  sum  which  it  would 
have  appeared,  a  century  ago,  utterly  impossible  to  conceive 
that  industry  could  sustain,  because,  a  century  ago,  it  was  im- 
possible to  conceive  the  vast  increase  which  has  been  made  to 
the  skill,  dexterity,  and  judgment  with  which  it  was  then 
directed."  * 

The  considerations  that  have  now  been  presented  tend  to 
show,  that  the  tax  imposed  upon  a  community  by  any  protec- 
tive duty  that  falls  short  of  a  prohibition,  is  a  very  light  one, 
as  a  considerable  portion  of  it  is  paid  by  the  foreign  producers, 
and  reappears  in  the  additional  price  received  for  exports ;  that 
it  keeps  up  the  rate  of  wages,  and  enlarges  the  field  for  the 
employment  of  capital ;  that  it  prevents  the  business  of  agri- 
culture from  being  so  overdone  as  to  render  raw  material  the 
only  article  of  export,  and  to  depress  the  price  of  this  so  low 
that,  though  the  people  have  a  rude  abundance  of  food  and 
other  mere  necessaries,  they  are  deprived  of  most  of  the  com- 
forts and  elegances  of  life ;  that  so  far  as  the  duty  bears  only 
upon  articles  of  luxury  and  ostentation,  the  tax  is  really  paid  by 
nobody,  but  is  a  creation  of  public  revenue  out  of  a  mere  change 
in  the  fashions  and  tastes  of  the  rich  ;  that  a  protective  system 
is  needed  only  while  the  people  are  going  through  a  period  of 
apprenticeship  in  manufactures,  and  can  be  removed  as  soon 
as  the  necessary  skill  and  experience  have  been  obtained,  when 
the  cost  of  the  commodities  will  be  less  than  it  would  have 
been  if  the  duty  had  never  been  imposed ;  and  that  its  general 
effect  is  to  stimulate  invention,  to  multiply  the  productive  arts, 
and  to  enlarge  the  sources  of  national  opulence. 

But  on  this  great  question  between  free  trade  and  a  pro- 
tective policy,  these  arguments  relating  only  to  pecuniary  loss 
or  gain  do  not  merit  so  much  notice  as  the  considerations 
which  were  mentioned  in  the  eighth  chapter  of  this  work,  re- 
specting the  devotion  of  the  greater  part  of  the  people  to 

*  Rae's  New  Principles  of  Political  Economy,  pp.  61,  62. 


492  INTERNATIONAL  EXCHANGES. 

skilled  or  rude  labor,  and  their  consequent  collection  in  towns 
and  cities,  or  wide  dispersion  over  the  face  of  the  country. 
Viewed  in  this  light,  I  confess,  the  question  seems  to  be  one 
between  progress  in  civilization  and  the  arts,  or  a  gradual  re- 
turn, I  will  not  say  to  barbarism,  but  to  that  very  imperfect 
stage  of  civilization  which  exists  in  all  countries  where  the 
population  are  almost  exclusively  devoted  to  agriculture.  The 
best  legislative  policy  is  that  which  will  most  effectually  de- 
velop all  the  natural  advantages  of  a  country,  whether  mental 
or  material.  It  is  as  wasteful,  to  say  the  least,  to  allow  me- 
chanical skill  and  inventive  genius  to  remain  unemployed,  as 
it  would  be  to  permit  water-power  to  run  without  turning 
mills,  or  mineral  wealth  to  continue  in  the  ore,  or  forests  to 
wave  where  cotton  and  grain  might  grow  luxuriantly.  If  the 
rude  labor  of  husbandry  is  to  form  the  principal  employment 
of  the  people,  the  higher  remuneration  of  skilled  labor  in  the 
arts  must  be  sacrificed ;  and  this  would  be  as  bad  economy  as 
to  turn  our  richest  soils  into  sheep-pastures,  or  to  feed  cattle 
upon  the  finest  wheat.  The  dispersion  of  the  inhabitants  over 
vast  tracts  of  territory  in  the  isolated  pursuits  of  agriculture, 
the  great  majority  of  them  being  doomed  to  work  which 
would  not  tax  the  mental  resources  of  a  Russian  serf  or  a 
Feejee-Islander,  must  be  fatal,  not  only  to  the  growth  of 
wealth,  but  to  many  of  the  higher  interests  of  humanity.  The 
hardships  and  privations  of  a  life  in  the  backwoods  are  a  fear- 
ful drawback  upon  that  bounty  which  confers  as  a  free  gift  a 
homestead  farm  with  a  soil  that  reproduces  the  seed  a  hundred- 
fold. To  give  full  scope  to  all  the  varieties  of  taste,  genius, 
and  temperament ;  to  foster  inventive  talent ;  to  afford  ade- 
quate encouragement  to  all  the  arts,  whether  mechanical,  or 
those  which  are  usually  distinguished  as  the  fine  arts ;  to  con- 
centrate the  people,  or  to  bring  as  large  a  portion  of  them  as 
possible  within  the  sphere  of  the  humanizing  influences  and 
larger  means  of  mental  culture  and  social  improvement  which 
can  be  found  only  in  cities  and  large  towns ;  —  these  are  ob- 
jects which  deserve  at  least  as  much  attention  as  the  inquiry 
where  we  can  purchase  calicoes  cheapest,  or  how  great  pecu- 
niary sacrifice  must  be  made  before  we  can  manufacture  rail- 
road iron  for  ourselves.  I  see  not  how  these  ends  can  be 
obtained  in  a  country  like  ours,  which  is,  so  to  speak,  cursed 


THE    SUCCESSION    TO    PROPERTY.  493 

with  great  advantages  for  agriculture,  emigration,  and  the 
segregation  of  the  people  from  each  other,  without  throwing 
over  our  manufacturing  industry,  at  least  for  half  a  century  to 
come,  the  broad  shield  of  an  effective  protecting  tariff.  We 
shall  need  this  shield  only  while  we  are  passing  through  the 
term  of  our  pupilage  and  apprenticeship,  which,  for  a  nation, 
of  course,  is  always  a  protracted  one ;  we  shall  need  it,  to 
adopt  Burke's  phrase,  only  while  we  are  in  the  gristle,  and 
have  not  yet  hardened  into  the  bone,  of  manhood.  When  we 
have  enjoyed,  as  England  has  already  enjoyed,  the  benefit  of 
a  strict  protective  policy  for  over  a  century,  for  the  purpose  of 
completing  our  education  in  manufactures,  then  we  shall  be 
ready  to  do  what  England  at  last  has  done,  —  to  throw  down 
all  barriers,  and  to  invite  the  world  to  compete  with  us  in  the 
application  of  industry  and  skill  to  any  enterprise  designed  to 
satisfy  the  wants  of  man. 


CHAPTER    XXV. 

THE  DISTRIBUTION  OF  PROPERTY  AS  AFFECTED  BY  THE  LAWS 
REGULATING  THE  SUCCESSION  TO  THE  ESTATES  OF  PERSONS 
DECEASED. 

THE  question  respecting  the  distribution  of  property,  which 
has  chiefly  been  discussed  only  in  the  abstract  by  politicians 
and  Political  Economists,  has  now  become  one  of  practical  in- 
terest and  of  the  gravest  importance.  The  sacredness  of  the 
institution  has  been  generally  recognized.  That  the  accumu- 
lation of  wealth  in  the  hands  of  individuals  was  indispensa- 
ble, in  order  that  the  aggregate  property  of  the  nation  might 
increase,  and  for  the  maintenance  of  order,  the  prevention  of 
endless  disputes,  the  encouragement  of  industry  and  enterprise, 
and  the  promotion  of  all  the  higher  interests  of  society,  was  a 
fact  that  few  were  bold  enough  to  deny.  The  inheritor  of  an 
estate  usually  claims  it  even  as  a  natural  right;  he  seldom 
thinks  of  defending  his  possession  of  it  merely  on  the  ground 
42 


494  THE    SUCCESSION    TO    PROPERTY. 

of  general  expediency.  He  holds  that  he  is  indebted  for  it,  not 
to  government,  or  legislation,  or  the  general  consent  of  the 
community,  but  to  those  general  principles  of  morality  and 
natural  law  which  protect  his  person  and  insure  him  the  free 
use  of  his  faculties  and  his  time.  Consequently,  he  invokes 
the  aid  of  the  law,  the  assistance  of  society,  whenever  he  is 
molested  in  the  enjoyment  of  his  property.  His  doctrine  is, 
that  government  did  not  give  it  to  him,  but  that  government  is 
bound  to  take  good  care  that  he  be  not  unjustly  deprived  of  it. 
Yet  nothing  is  more  certain  than  that  all  inJierited  property 
is  actually  enjoyed  by  the  gift  of  law  and  the  consent  of  soci- 
ety. A  natural  right  is  not  limited  by  the  boundaries  of 
states ;  yet  a  second  son  in  France  claims  an  equal  share  of 
his  parent's  real  estate,  in  the  same  manner,  and  for  the  same 
reason,  that  the  eldest  son  in  England  claims  the  whole.  An 
American  is  entitled  to  dispose  of  his  whole  property  by  will, 
according  to  his  own  judgment  or  caprice ;  he  may  endow  a 
college  or  a  cat  with  it,  if  he  sees  fit,  to  the  total  exclusion  of 
his  natural  heirs.  But  this  posthumous  privilege,  this  post- 
mortem enjoyment  of  wealth,  is  strictly  limited  in  France  ;  if  a 
testator  has  one  child,  he  can  dispose  of  but  half  of  his  prop- 
erty ;  if  he  has  two  children,  only  a  third,  and  if  three,  only  a 
fourth,  of  his  estate  is  subject  to  his  own  will.  The  respective 
shares  of  the  sons  and  daughters  are  accurately  determined, 
and  a  man  cannot,  even  by  gift  during  his  lifetime,  do  any- 
thing to  contravene  the  effect  of  this  law.  Now,  as  most  of 
the  wealth  of  a  country,  in  the  course  of  a  single  generation, 
must  descend  by  inheritance  or  bequest,  and  as  this  descent  is 
everywhere  regulated  by  legislation,  it  follows  that  inherited 
property  is  the  creature  of  law ;  its  distribution  is  effected  by 
government,  or  by  the  general  consent  of  society,  and  is  reg- 
ulated by  considerations  of  expediency  alone.  It  sounds 
strange,  but  it  is  true,  that  the  same  authority  which  in  Eng- 
land upholds  the  right  of  primogeniture,  and  in  Scotland 
gives  the  privilege  of  perpetual  entail,  and  in  France  deprives 
a  testator  of  the  power  of  giving  away  more  than  a  small  frac- 
tion of  his  property  by  will,  might,  ivith  equal  justice,  decree 
that  a  man's  whole  estate  on  his  decease  should  escheat  to  the 
state,  or  come  under  the  disposal  of  the  legislature,  to  be  ap- 
plied equally  for  the  benefit  of  the  whole  nation.  The  legisla- 


THE    SUCCESSION    TO    PROPERTY.  495 

tive  power  does  not  enact  that  the  whole  people  shall  be  equal 
and  joint  heirs  of  all  property  which  is  vacated  by  death,  simply 
because  it  believes  that  it  is  more  for  the  interest  of  the  whole 
people  that  the  estate  should  be  inherited  only  by  the  children 
of  the  deceased,  or  should  descend  exclusively  to  the  oldest  son. 
The  law  which  disinherits  five  children  out  of  one  family  for  the 
benefit  of  the  sixth,  is  surely  competent  to  deprive  the  sixth 
also  of  his  inheritance ;  if  it  leaves  but  one  fourth  of  the 
estate  to  the  caprice  of  the  testator,  it  may  destroy  the  efficacy 
of  wills  altogether. 

It  is  true,  that  some  considerations  of  justice  and  natural 
right  come  in  to  limit  the  general  authority  of  law.  The  prop- 
erty which  a  man  does  not  inherit,  but  actually  creates  by  his 
own  industry,  seems  to  be  his  own  by  a  higher  and  stronger 
title  than  any  which  society  can  confer.  But  it  is  no  infringe- 
ment of  his  right  to  say,  that  his  power  over  the  valuable  article 
thus  produced  by  him  shall  cease  at  his  death ;  for  the  only 
superiority  of  his  title  consists  in  the  fact  that  he,  the  possessor 
of  the  property,  was  also  its  creator,  and  one  who  only  inherits 
it  from  its  first  cwner  cannot  urge  this  plea ;  to  defend  the  ab- 
solute right  of  the  heir,  would  be  to  maintain  that  a  right  by 
inheritance  is  equal  to  one  by  creation,  and  thus  to  destroy  the 
original  claim  of  superiority  of  title.  Absolute  ownership, 
however  sacred  for  the  time,  necessarily  terminates  at  the  death 
of  the  individual ;  society  deprives  him  of  nothing  that  is  his 
own,  when  it  refuses  him  testamentary  power,  because  nothing 
that  belongs  to  earth  can  be  enjoyed  beyond  the  grave,  and  he 
who  has  nothing  can  be  deprived  of  nothing. 

Again,  the  rightful  authority  of  the  legislature  over  the  de- 
scent of  property  is  limited  by  the  trusts  and  expectations  that 
have  been  created  by  immemorial  usage  and  the  previously 
existing  state  of  the  law.  The  conduct,  the  hopes,  the  calcula- 
tions of  men,  are  regulated  by  the  customs  of  the  country,  by 
the  assumed  sanctity  of  prescription,  and  by  long  established 
institutions.  The  laws  which  regulate  the  descent  of  property 
are  fundamental  in  their  character ;  they  are  classed  with  the 
first  principles  of  the  constitution,  like  those  which  determine 
the  form  of  the  executive  government,  whether  it  shall  be  re- 
publican, aristocratic,  or  monarchical ;  and,  excepting  insignifi- 
cant changes  of  forms  and  details,  they  are  never  altered  but 


496  THE    SUCCESSION    TO    PROPERTY. 

on  grand  emergencies,  or  after  a  stormy  revolution.     A  person 
of  fortune  adapts  the  education  of  his  children  to  their  presumed 
future  enjoyment  of  his  large  estates ;  and  although  his  own 
absolute  right  to  his  lands  and  goods  certainly  terminates  at 
his  death,  these  children  suffer  flagrant  wrong,  if  their  honest 
expectations  are  deceived,  and  they  are  compelled  to  adopt 
a  course  of  life  for  which  they  were  not  trained.     Society  is 
under  an  implied  contract  with  all  who  are  members  of  it,  not 
to  make  sudden  or  wanton  changes  in  its  own  fundamental 
statutes,   on   whose  presumed  inviolability  great  hopes   have 
been  cherished,  and  plans  devised  the  execution  of  which  was 
to  extend  through  future  generations.     Thus,  if  the  French 
law  of  descent  were  suddenly  introduced  into  this  country,  a 
great  outcry  would  be  raised,  not  merely  against  the  policy, 
but  the  justice,  of  the  measure ;  though  no  one  thinks  of  im- 
pugning the  law,  as  it  actually  exists  in  France,  on  any  higher 
ground  than  that  of  expediency.     The  right  of  regulating  the 
descent  of  property  by  will,  of  rewarding  a  favorite  child,  and 
disinheriting  a  stubborn  or  vicious  one,  has  come  to  be  consid- 
ered here  as  a  necessary  incident  of  ownership ;  it  would  be 
urged,  that  the  government  might  as  well  rob  a  man  directly 
of  his  wealth,  as  deprive  him  of  the  power  of  giving  it  away 
as  he  sees  fit,  whether  the  gift  is  to  take  effect  during  his  life- 
time or  after  his  decease.     Yet  nothing  can  be  more  clear,  than 
that  a  man  necessarily  abandons  his  earthly  property  at  the 
grave ;  and  if  any  wrong  is  done  in  the  distribution  of  it,  that 
wrong  is  not  suffered  by  the  deceased,  who  is  beyond  the 
sphere  of  injury  from  his  fellow-man,  but  by  those  whom  he 
leaves  behind.     If  his  nearest  of  kin  have  any  absolute  right  to 
it,  beyond  the  limits  of  prescription  and  positive  statute,  in 
preference  to  all  other  persons  in  the  community,  and  to  the 
community  itself,  we  have  yet  to  learn  on  what  foundation 
this  right  is  based,  and  by  what  civilized  nation,  or  in  what 
code  of  laws,  it  has  ever,  to  the  full  extent,  been  recognized. 
There  is  an  implied  contract  between  society  and  the  individ- 
ual, that  he  shall  be  protected  in  the  exclusive  enjoyment  of 
his  earnings,  the  fruits  of  his  own  labor,  so  long  as  he  is  capable 
of  enjoying  them ;  when  that  capacity  ceases,  the  contract  is 
dissolved,  the  obligations  of  society  have  been  fulfilled,  and 
what  is  left  behind  without  a  natural  owner  comes  into  the 


THE    SUCCESSION    TO    PROPERTY.  497 

common  stock,  to  be  distributed,  or  appropriated  in  mass,  solely 
from  a  regard  to  the  greatest  good  of  the  greatest  number. 

These  considerations  are  applicable  to  all  inherited  property, 
whether  real  or  personal ;  but  they  are  most  conclusive  in  the 
case  of  the  ownership  of  land.  Without  going  into  the  ques- 
tion respecting  the  manner  in  which  territory  was  first  par- 
celled out  and  appropriated  to  exclusive  use,  or  whether  the 
original  division  took  place  by  express  compact,  or  by  silent 
sufferance  which  gradually  became  prescriptive  right,  there  is 
no  doubt  that  the  land  first  belonged  in  common  to  all  men, 
and  the  appropriation  of  it  by  individuals  is  now  admitted  to 
be  equitable  only  because  it  is  believed  to  be  expedient.  The 
earth  was  given  to  be  the  habitation,  and  to  provide  for  the 
subsistence,  of  all  men,  and  it  was  at  first  enjoyed  in  common. 
The  ocean  and  the  air  are  so  used  even  now ;  the  former  is 
the  common  highway  of  nations,  because  its  vast  extent  affords 
room  for  all ;  \vhile  the  right  of  navigating  straits,  narrow  seas, 
and  inlets  into  the  land,  is  sometimes  limited,  under  the  pre- 
text that  one  government  must  have  the  entire  control  of  them 
in  order  to  prevent  interference  and  disputes,  or  to  provide  for 
its  own  safety,  or  to  repay  itself  for  disbursements  required  in 
order  to  make  the  navigation  of  them  safe  for  all.  These  are 
reasons  of  mutual  convenience  ;  and  perfectly  similar  reasons 
are  alleged  to  justify  the  division  of  land,  and  the  appropriation 
of  it  by  individual  owners.  That  appropriation  of  it  in  the 
first  instance  was  certainly  a  usurpation,  for  it  must  have  taken 
place  without  the  consent,  and  even  without  the  knowledge,  of 
the  vast  majority  of  those  who,  up  to  that  period,  had  enjoyed 
it  in  common,  each  one  of  whom  had  consequently  as  good  a 
right  to  it  as  he  who  first  fenced  it  in.  If  it  could  be  proved 
that  this  division  did  not  promote  the  general  welfare,  or  that 
it  produced  on  the  whole  more  harm  than  good,  every  person 
might  claim  either  a  share  of  the  land,  or  the  privilege  of  culti- 
vating the  whole  of  it  in  common  with  others,  as  his  natural 
birthright.  In  fact,  a  portion  of  the  land  is  always  given  up 
for  general  use  as  a  highway,  because  it  is  for  the  common  ad- 
vantage that  all  should  have  the  privilege  of  passing  over  it. 
The  farms  contiguous  to  the  highway  could  not  equitably  be 
held  as  private  property,  except  from  a  similar  regard  to  the 
common  interest. 

42* 


498  THE    SUCCESSION    TO    PROPERTY. 

Two  considerations,  however,  must  be  admitted  to  modify 
the  inferences  which  might  otherwise  be  drawn  from  this  state- 
ment. The  first  may  be  given  in  the  language  of  Mr.  Mill. 
"  If  the  land  derived  its  productive  power  wholly  from  nature," 
he  says,  "  and  not  at  all  from  industry,  or  if  there  were  any 
means  of  discriminating  what  is  derived  from  each  source,  it 
not  only  would  not  be  necessary,  but  it  would  be  the  height  of 
injustice,  to  let  the  gift  of  nature  be  engrossed  by  a  few."  But 
this  is  not  the  case,  for  "  though  land  is  not  the  produce  of  in- 
dustry, most  of  its  valuable  qualities  are  so.  Labor  is  not  only 
requisite  for  using,  but  almost  equally  so  for  fashioning,  the 
instrument.  Considerable  labor  is  often  required  at  the  com- 
mencement, to  clear  the  land  for  cultivation.  In  many  cases, 
even  when  cleared,  its  productiveness  is  wholly  the  effect  of 
labor  and  art.  The  Bedford  Level  produced  little  or  nothing 
until  artificially  drained.  The  bogs  of  Ireland,  until  the  same 
thing  is  done  to  them,  can  produce  little  besides  fuel.  One  of 
the  barrenest  soils  in  the  world,  composed  of  the  material  of 
the  Goodwin  Sands,  the  Pays  de  Waes  in  Flanders,  has  been 
so  fertilized  by  industry,  as  to  have  become  one  of  the  most 
productive  in  Europe.  Cultivation  also  requires  buildings  and 
fences,  which  are  wholly  the  produce  of  labor.  The  fruits  of 
this  industry  cannot  be  reaped  in  a  short  period.  The  labor 
and  outlay  are  immediate,  the  benefit  is  spread  over  many 
years,  perhaps  over  all  future  time.  A  holder  will  not  incur 
this  labor  and  outlay,  when  his  successors,  and  not  himself, 
will  be  benefited  by  it.  If  he  undertakes  such  improvements, 
he  must  have  a  long  period  before  him  in  which  to  profit  by 
them :  and  he  cannot  continue  always  to  have  a  long  period 
before  him,  unless  his  tenure  is  perpetual." 

Again,  land  usually  does  not  long  continue  in  the  possession 
of  the  person,  or  even  of  the  natural  heirs  of  the  person,  who 
first  appropriated  it,  or  took  it  out  of  the  common  stock.  He 
sells  it  to  another,  who  pays  a  price  for  it  out  of  the  accumu- 
lated fruits  of  his  previous  industry,  these  fruits  being  his  own 
property  by  the  highest  title  under  which  property  is  ever  held. 
Society  cannot  reclaim  the  land,  then,  without  stripping  the 
present  owners  of  their  rights,  which  they  have  acquired  in  the 
most  unexceptionable  manner.  Whatever  claim  the  commu- 
nity may  have,  is  good  only  against  him  who  first  wrongly 


THE    SUCCESSION    TO    PROPERTY.  499 

appropriated  what  was  not  his  own,  and  not  against  one  who 
now  possesses  nothing  that  he  has  not  fairly  paid  for  out  of  the 
proceeds  of  his  previous  industry  and  frugality,  and  who  has 
vested  his  wealth  in  a  purchase  of  land  under  the  tacit  sanc- 
tion of  the  public,  who  cannot,  at  this  late  day,  retrieve  the 
consequences  of  their  previous  neglect  without  gross  injustice. 

Little  reasoning  is  needed  to  confute  the  theory  of  the  Com- 
munists, who  propose  an  equal  division  of  goods  as  a  remedy 
for  nearly  all  the  evils  with  which  society  is  afflicted.  They 
are  not  aware,  or  do  not  reflect,  that  the  sight  of  the  two  ex- 
tremes of  opulence  and  poverty,  —  the  hope  of  rising  to  the  one 
and  the  fear  of  falling  into  the  other,  —  is  the  constant  stimu- 
lus which  keeps  up  that  energy  and  activity  of  the  human  race, 
through  which  alone  these  goods  are  created.  Make  men  se- 
cure of  a  provision  for  all  their  wants,  take  away  from  them 
all  objects  of  ambition,  destroy  both  anxiety  and  emulation, — 
and  these  are  the  certain  results  of  an  enforced  equality  of 
property  and  condition,  —  and  after  a  few  years,  even  if  there 
remained  anything  to  be  divided  among  them,  (which  there 
would  not,  for  their  wastefulness  under  such  circumstances 
would  equal  their  indolence,)  they  would  become  useless  and 
discontented  drones,  devoured  by  ennui,  or  eager  for  wrangling 
and  fighting  with  each  other,  as  the  only  means  of  relieving 
their  otherwise  stagnant  existence. 

But  the  theorists  tell  us,  that  the  necessity  of  laboring  for 
the  good  of  the  community  would  be  a  motive  to  action,  which 
would  supply  the  place  of  the  necessity  which  every  person 
now  feels  of  laboring  for  himself.  We  answer,  that  the  com- 
mon adage,  "what  is  everybody's  business  is  nobody's,"  is 
enough  to  show  the  folly  of  this  supposition,  which  implies 
great  ignorance  of  the  dispositions  of  mankind.  The  com- 
monest observation  proves,  that,  to  make  a  man  industrious, 
you  must  show  him  that  the  fruits  of  his  industry  will  be 
wholly  his  own ;  if  he  is  to  share  them  equally  with  a  thou- 
sand others,  who  have  not  shared  the  particular  effort  which 
produced  them,  he  will  throw  aside  his  implements  of  labor  in 
disgust,  or  relinquish  them  on  the  first  approach  of  weariness. 
The  motive  to  exertion  must  be  immediate,  or  it  will  not  be 
sufficiently  pungent.  It  matters  not,  if  you  prove  to  him  by  a 
demonstration,  that  his  individual  welfare  is  inseparably  con- 


500  THE    SUCCESSION    TO    PROPERTY. 

nected  with  the  interests  of  the  whole  community.  Men  do 
not  act  from  such  far-sighted  calculation  as  this ;  they  look 
first  to  their  own  interests  at  the  present  moment.  Practically, 
each  one  will  argue  thus :  '  I  am  but  a  unit  in  a  vast  multi- 
tude, and  the  effect  which  my  idleness  or  industry  at  this  time 
will  have  on  the  general  welfare,  will  be  a  quantity  too  small 
to  be  appreciated  ;  and  little  as  the  general  stock  will  be  dimin- 
ished by  my  refusal  to  work,  my  personal  share  of  that  dimi- 
nution or  loss,  being  the  quotient  after  another  division  among 
the  whole  multitude,  will  be  an  infinitesimal  of  the  second  de- 
gree, an  atom  that  I  cannot  distinguish,  —  while  the  effort  to 
overcome  my  present  unwillingness  to  labor  will  be  consider- 
able. I  will  remain  idle,  then.'  This  is  very  selfish  and  short- 
sighted reasoning,  it  is  true ;  but  it  needs  very  little  knowledge 
of  human  nature  to  convince  one,  that  it  is  the  only  way  in 
which  the  bulk  of  mankind  will  reason,  and  very  little  calcula- 
tion of  consequences  to  see  what  would  be  the  result,  if  every 
member  of  the  community  should  thus  think  and  act. 

Of  course,  we  shall  be  told  that  men  must  be  educated,  and 
taught  to  act  with  more  foresight  and  less  selfishness,  and  from 
considerations  of  duty  and  benevolence,  instead  of  blindly  fol- 
lowing the  impulses  of  the  moment.  Certainly,  let  them  be 
educated,  and  their  moral  condition  be  improved,  by  all  means  ; 
when  they  have  become  universally  intelligent,  philanthropic, 
and  industrious,  and  are  no  longer  actuated  by  selfish  motives, 
property  may  well  be  abolished,  and  society  may  exist  under 
any  form,  for  the  social  state  cannot  then  fail  to  be  a  happy 
one,  however  constituted.  Meanwhile,  as  this  work  of  improv- 
ing the  character  of  the  whole  race  will  probably  be  a  slow  and 
tedious  one,  and  as  the  new  institutions  will  not  be  practicable 
till  it  is  completed,  it  might  be  well  to  commence  with  the  op- 
ulent classes  alone,  who  are  comparatively  few  in  number,  and 
who,  when  converted  and  made  purely  benevolent  and  unself- 
ish, will  need  no  persuasion,  no  new  framework  of  society,  to 
induce  them  to  share  their  goods  equally  with  their  less  fortu- 
nate brethren.  Human  nature,  as  it  is  now  constituted,  it  is 
evident,  is  not  compatible  with  the  maintenance  of  your  new 
institutions  ;  any  such  improvement  in  it  as  might  render  it  fit 
for  their  support,  would  take  away  the  necessity  of  making 
any  change. 


THE    SUCCESSION    TO    PROPERTY.  501 

The  general  advantages  of  the  institution  of  property  are 
so  obvious,  that  it  may  be  said  to  exist  by  general  consent. 
Without  it,  mankind  would  relapse  into  barbarism,  —  nay,  into 
the  condition  of  the  wild  beasts ;  for  even  a  tribe  of  savages 
cannot  live  together  without  exclusive  ownership  of  their  rude 
tools,  arms,  clothing,  and  habitations.  No  one  would  submit 
to  the  labor  of  tilling  the  ground,  because  others  would  have 
an  equal  right  with  him  to  reap  the  harvest.  No  man  would 
even  erect  a  hut,  if  his  neighbors  could  claim  possession  of  it 
as  soon  as  it  was  completed.  Prudence  and  frugality  would 
be  impossible  virtues ;  no  provision  for  the  future  would  be 
made,  if  those  who  wasted  and  spoiled  were  allowed  to  enjoy 
that  provision  as  well  as  those  who  saved  it.  No  society  could 
be  organized ;  for  the  only  bond  of  association  is  the  posses- 
sion of  certain  property  and  rights,  from  the  enjoyment  of 
which  those  who  are  not  members  of  the  society  are  excluded. 
Universal  want  would  lead  to  universal  war,  and  that  condi- 
tion of  mankind  which  Hobbes  imagined  as  the  inevitable  re- 
sult of  the  evil  principles  of  human  nature,  when  not  checked 
by  despotism,  would  become  a  fearful  reality. 

To  guard  against  these  tremendous  evils,  the  sacredness  of 
property  is  recognized,  government  is  instituted  for  its  protec- 
tion, and  laws  are  made  to  facilitate  its  increase,  to  regulate 
its  use,  and  to  provide  for  the  distribution  of  it,  when  the  death 
of  its  producer  or  former  owner  leaves  it  to  the  disposal  of  his 
survivors.  The  rule  almost  universally  adopted  in  the  last  case 
is,  to  distribute  it  among  those  who  are  nearest  of  kin  to  the 
deceased,  though  in  very  different  proportions,  according  to  the 
different  policy  of  the  law  in  different  countries.  A  man's 
nearest  relations  are  commonly  said  to  be  his  natural  heirs,  not 
because  they  have  any  natural  or  indefeasible  right  to  his  es- 
tates, but  because  they  are  nearest  to  his  affections,  and,  if  his 
will  were  to  be  consulted,  they  would  generally  succeed  to  the 
ownership.  The  strongest  natural  claim  to  property  thus  left 
vacant  is  surely  that  of  the  community  at  large,  to  whom,  if  it 
be  land,  it  originally  belonged,  and  under  whose  protection  and 
by  whose  aid,  whether  it  be  real  or  personal,  it  was  accumu- 
lated. Their  claim,  in  fact,  is  universally  admitted,  as  they 
assume  the  power  of  giving  the  property  away  by  designating 
the  persons  who  shall  inherit  it,  and  the  proportions  which  they 


502  THE    SUCCESSION    TO    PROPERTY. 

shall  respectively  hold.  And  there  is  no  doubt  that  society 
acts  wisely  in  consulting  the  wishes  of  the  original  proprietor, 
by  limiting  the  succession  to  his  own  family  or  his  nearest 
connections.  Industry  and  economy  are  thus  promoted,  as 
every  one  is  encouraged  to  labor  and  to  save  up  to  the  close  of 
his  life,  since  those  who  are  dearest  to  him  are  to  have  the  sole 
benefit  of  his  accumulations.  If  he  had  only  a  life  interest  in 
his  estate,  if  society  at  large,  or  individuals  who  were  entire 
strangers  to  him,  were  to  be  his  heirs,  his  exertions  would  be 
limited  to  the  attainment  of  a  fortune  barely  sufficient  to  sup- 
ply his  own  wants.  He  would  spend  both  income  and  princi- 
pal, and  be  reckless  of  the  future,  so  that  he  had  enough  left 
for  the  necessities  of  his  own  declining  years.  Family  ties, 
also,  would  be  weakened  or  destroyed  by  a  law  giving  the  in- 
heritance to  strangers ;  children  would  have  less  motive  to  rev- 
erence their  parents,  who  could  not  labor  to  promote  the  wel- 
fare of  their  offspring,  except  for  the  brief  remaining  period  of 
their  own  existence ;  and  as  the  admirable  constitution  of  our 
moral  nature  is  such,  that  we  always  love  those  most  upon 
whom  we  have  conferred  the  greatest  benefits,  parental  affec- 
tion under  these  circumstances  would  be  very  sensibly  dimin- 
ished. Besides,  such  a  law  could  be  executed  only  very 
imperfectly.  Invention,  stimulated  by  affection,  would  be 
constantly  on  the  rack  to  evade  it,  by  fraudulent  transfers  and 
sales  effected  during  the  lifetime  of  the  first  owners ;  and  the 
attempt  to  prevent  such  practices  would  lead  to  intolerable  in- 
quisition into  private  and  domestic  concerns,  and  to  endless 
litigation. 

It  is  from  the  wisest  reasons,  therefore,  from  the  most  judi- 
cious regard  to  the  general  welfare,  that  the  law  gives  the 
property  of  a  person  deceased  intestate  to  the  nearest  of  kin. 
Still,  there  is  room  for  a  wide  discretion  in  determining  the 
principles  on  which  the  estate  shall  be  divided  among  those 
who  stand  in  the  same  degree  of  relationship  to  the  first  pro- 
prietor. Shall  any  regard  be  paid  to  the  wishes  of  the  de- 
ceased in  this  respect  ?  Shall  all  share  alike  ?  Or  what  pref- 
erence shall  be  shown  to  the  sons  over  the  daughters,  or  to  the 
first-born  over  his  brothers  and  sisters  ?  These  are  grave  ques- 
tions, and  on  the  answers  to  them,  more,  we  had  almost  said, 
than  on  all  other  causes  united,  the  form  of  government  and 


THE    SUCCESSION    TO    PROPERTY.  503 

the  welfare  of  the  people,  the  whole  political  and  social  frame- 
work of  society,  in  every  country,  must  ultimately  depend. 
Notwithstanding  their  immense  importance,  these  questions 
have  not,  till  of  late  years,  been  much  discussed  either  by  leg- 
islators or  political  economists.  "  I  am  surprised,"  says  M. 
De  Tocqueville,  "  that  ancient  and  modern  jurists  have  not 
attributed  a  greater  importance  to  the  laws  of  inheritance.  It 
is  true,  they  belong  to  civil  affairs ;  but  they  ought,  neverthe- 
less, to  be  placed  at  the  head  of  all  political  institutions ;  for, 
while  political  laws  are  only  the  symbols  of  a  nation's  condi- 
tion, those  which  determine  the  descent  of  property  exercise 
an  extraordinary  influence  over  its  social  state.  They  operate 
in  a  uniform  and  certain  manner.  Man  acquires  through  their 
means  a  kind  of  preternatural  power  over  the  destiny  of  un- 
born generations.  When  the  legislator  has  established  the 
laws  of  succession,  he  may  rest  from  his  labors.  The  machine 
is  a  self-acting  one,  and  when  once  put  in  motion,  it  will  ad- 
vance steadily,  as  of  its  own  accord,  towards  the  previously 
appointed  end.  Adjusted  in  one  manner,  it  brings  together, 
concentrates,  and  heaps  up  property  first,  and  power  after- 
wards, in  the  hands  of  a  few ;  it  causes  an  aristocracy,  so  to 
speak,  to  spring  out  of  the  grouud.  Adjusted  on  different 
principles,  and  tamed  another  way,  its  action  is  still  more  rap- 
id ;  it  now  breaks  up,  pulverizes,  and  disseminates  wealth  and 
power.  It  crushes  or  shatters  every  obstacle  that  is  found  in 
its  path  ;  it  rises  and  falls  upon  the  ground  with  repeated  blows, 
till  there  is  no  longer  anything  to  be  seen  but  an  impalpable 
and  moving  dust  on  which  democracy  is  seated." 

And  long  before  De  Tocqueville,  in  an  address  delivered  at 
Plymouth  in  1820,  Mr.  Webster  said :  "  A  republican  form  of 
government  rests,  not  more  on  political  constitutions,  than  on 
those  laws  which  regulate  the  descent  and  transmission  of 
property.  Governments  like  ours  could  not  have  been  main- 
tained where  property  was  holden  according  to  the  principles 
of  the  feudal  system ;  nor,  on  the  other  hand,  could  the  feudal 
constitution  possibly  exist  with  us.  Our  New  England  ances- 
tors brought  hither  no  great  capitals  from  Europe ;  they  were 
themselves,  either  from  their  original  condition,  or  from  the 
necessity  of  their  common  interest,  nearly  on  a  general  level  in 
respect  to  property.  Their  situation  demanded  a  parcelling  out 


504  THE    SUCCESSION    TO    PROPERTY. 

and  division  of  the  lands ;  and  it  may  be  fairly  said,  that  this 
necessary  act  fixed  the  future  frame  and  form  of  their  govern- 
ment. The  character  of  their  political  institutions  was  deter- 
mined by  the  fundamental  laws  respecting  property.  The 
laws  rendered  estates  divisible  among  sons  and  daughters. 
The  right  of  primogeniture,  at  first  limited  and  curtailed,  was 
afterwards  abolished.  The  property  was  all  freehold.  The 
entailment  of  estates,  long  trusts,  and  the  other  processes  for 
fettering  and  tying  up  inheritances,  were  not  applicable  to  the 
condition  of  society,  and  seldom  made  use  of.  On  the  con- 
trary, alienation  of  the  land  was  every  way  facilitated,  even  to 
the  subjecting  of  it  to  every  species  of  debt.  The  establish- 
ment of  public  registries,  and  the  simplicity  of  our  forms  of 
conveyance,  have  greatly  facilitated  the  change  of  real  estate 
from  one  proprietor  to  another.  The  consequence  of  all  these 
causes  has  been,  a  great  subdivision  of  the  soil,  and  a  great 
equality  of  condition  ;  the  true  basis,  most  certainly,  of  a  popu- 
lar government. 

"  A  most  interesting  experiment  of  the  effect  of  a  subdivis- 
ion of  property  on  government  is  now  making  in  France. 
The  law  regulating  the  transmission  of  property  in  that  coun- 
try now  divides  it,  real  and  personal,  among  all  the  children 
equally,  both  sons  and  daughters ;  and  there  is,  also,  a  very 
great  restraint  on  the  power  of  making  dispositions  of  prop- 
erty by  will.  It  has  been  supposed,  that  the  effect  of  this 
might  probably  be,  in  time,  to  break  up  the  soil  into  such 
small  subdivisions,  that  the  proprietors  would  be  too  poor  to 
resist  the  encroachments  of  executive  power.  I  think  far  oth- 
erwise. What  is  lost  in  individual  wealth  will  be  more  than 
gained  in  numbers,  in  intelligence,  and  in  a  sympathy  of  senti- 
ment. I  would,  presumptuously  perhaps,  hazard  a  conjecture, 
that  if  the  government  do  not  change  the  law,  the  law,  in  half 
a  century,  will  change  the  government ;  and  this  change  will 
not  be  in  favor  of  the  power  of  the  crown,  as  some  European 
writers  have  supposed,  but  against  it."  * 

In  just  ten  years,  this  remarkable  prediction  was  fulfilled 
by  the  revolution  of  1830  ;  and  in  less  than  twenty  years  more, 
by  the  still  more  democratic  revolution  of  1848. 

*  Webster's  Works,  Vol.  I.  pp.  35  -  37.    I  have  condensed  the  extract 


THE    SUCCESSION    TO    PROPERTY.  505 

That  the  extremes  of  opulence  and  destitution  should  exist 
side  by  side,  a  few  revelling  in  the  enjoyment  of  immense  for- 
tunes, while  millions  around  them  are  suffering  from  the  want 
of  all  the  comforts,  and  even  of  the  necessaries,  of  life,  is  the 
great  reproach  of  modern  civilization.  Men  have  acquiesced 
in  the  evil  only  because  they  believed  it  to  be  irreparable. 
Any  attempt  to  remove  the  inequality  of  property  was  sup- 
posed to  threaten  the  security  of  the  institution  itself,  and  thus 
to  lead  immediately  to  the  dissolution  of  society  and  govern- 
ment, and  to  the  destruction  of  all  the  higher  interests  of  the 
human  family.  The  subject  would  not  bear  to  be  tampered 
with ;  the  sensibility  of  the  community  upon  this  point  is  fe- 
verish in  the  extreme.  To  excite  their  fears,  to  shake  their 
confidence  in  the  permanency  of  the  institution  as  it  exists,  is 
enough  to  break  the  springs  of  industry  and  enterprise  at  once, 
and  to  cause  nearly  as  much  mischief  as  a  complete  social  rev- 
olution. Changes  in  the  laws  affecting  the  distribution  of 
wealth,  therefore,  are  seldom  proposed,  except  in  the  course  of 
some  great  political  convulsion,  when  the  foundations  of  soci- 
ety are  broken  up,  and  the  whole  fabric  is  to  be  placed  on  a 
new  basis,  and  erected  anew. 

Sudden  changes,  then,  are  out  of  the  question ;  they  would 
only  enhance,  or  render  universal,  the  evils  which  we  seek  to 
remedy.  The  only  inquiry  is,  whether  causes  may  not  be  set 
to  work  which  will  tend  slowly  but  irresistibly  to  the  equaliza- 
tion of  wealth,  without  exciting  alarm,  or  affecting  the  present 
enjoyment  of  property,  or  injuring  any  vested  rights,  or  lessen- 
ing to  any  appreciable  extent  the  motives  for  accumulation. 
If  the  diffusion  of  capital,  the  division  of  estates,  and  the  con- 
sequent approach  to  equality  of  condition,  when  thus  gradu- 
ally effected,  should  act  with  resistless  force  upon  the  institu- 
tions of  the  state,  and  change  the  nature  of  the  government, 
we  need  not  deplore  the  result.  In  these  modern  days,  politi- 
cal influence  gravitates  towards  property,  as  in  former  ages  it 
was  always  united  with  military  strength.  Riches  are  but  an- 
other name  for  power,  either  in  a  republic,  a  monarchy,  or  a 
despotism ;  and  as  the  possession  of  them,  when  fairly  earned, 
not  inherited,  is  usually  coupled  with  sobriety,  prudence,  in- 
dustry, and  good  sense,  and,  above  all,  with  a  distrust  of  inno- 
vation and  a  love  of  order,  it  is  well  that  they  should  have  the 
43 


506  THE    SUCCESSION    TO    PROPERTY. 

command  or  the  leading  influence  in  the  state.  A  due  regard 
for  equality  of  rights,  then,  only  requires  that  wealth  should  be 
open  to  the  attainment  of  all,  that  it  should  never  be  made  in- 
alienable or  indivisible  by  its  present  holder,  never  be  locked 
up  by  legal  proceedings  which  bind  future  generations,  but  be 
left  to  circulate  freely  as  air,  and  to  find  its  natural  level,  as 
water  does,  by  diffusion  in  broad  seas  and  oceans.  The  acqui- 
sition of  it  will  thus  be  a  natural  test  of  character,  ability,  and 
intelligence,  and  political  power  can  nowhere  be  more  safely 
lodged  than  in  the  hands  of  its  possessors.  In  a  country  where 
no  one  is  poor  except  by  his  own  fault,  where  misery  is  not  as 
necessarily  inherited  by  one  class  as  immense  wealth  is  by  an- 
other, where  pauperism  never  exists  except  as  a  consequence 
of  folly,  indolence,  or  crime,  the  holders  of  property  may  justly 
claim  the  exclusive  control  of  the  state.  They  will  not  need 
to  have  this  power  expressly  given  to  them  by  laws  and  con- 
stitutions ;  it  will  naturally  and  inevitably  fall  into  their  pos- 
session, —  so  much  of  it,  at  least,  as  they  shall  deem  necessary 
for  their  own  security  and  happiness. 

Admitting  these  general  principles,  then,  that  property  ought 
to  be  made  inviolable,  that  it  should  descend  only  to  the  fam- 
ily or  kindred  of  the  deceased,  and  be  distributed  among  them 
from  a  regard,  not  to  their  private  interests,  but  to  the  welfare 
of  the  whole  community,  (though  these  two  ends  in  the  long 
run  will  be  identical,)  we  come  to  inquire  into  the  policy  of 
the  different  laws  by  which,  in  different  countries,  this  distribu- 
tion is  effected.  We  take  it  for  granted,  that  great  inequality 
of  wealth  in  any  country  is  a  great  national  evil,  to  be  avoided 
or  lessened  by  the  use  of  all  just  means  which  are  consistent 
with  the  security  of  property  itself.  If  such  inequality  be  per- 
mitted to  continue  or  increase,  except  from  inevitable  necessity, 
the  conduct  of  the  legislators  who  foster  or  permit  it  becomes 
criminal  in  the  extreme ;  upon  their  heads  are  justly  charge- 
able the  privation  and  wretchedness,  the  moral  and  intellectual 
degradation,  the  famines  and  plagues,  which  it  brings  upon 
millions  of  their  fellow-beings. 

The  only  systems  of  law  regulating  the  succession  to  prop- 
erty which  need  here  be  considered  are  those  which  obtain  re- 
spectively in  England,  in  the  United  States,  and  in  France ; 
and  the  social  condition  of  the  people  in  these  three  countries 


THE    SUCCESSION    TO    PROPERTY.  507 

may  be  taken  as  a  guide  to  the  effects  of  these  laws,  and  of  the 
customs  and  institutions  which  are  encouraged  or  created  by 
them,  and  with  which  they  are  necessarily  connected.  The 
general  policy  of  the  law  is  sure  to  direct  the  inclinations  and 
habits  of  the  people,  so  that  the  law  is  justly  chargeable  with 
the  effects,  not  only  of  what  it  directly  enjoins,  but  of  what  it 
permits,  exemplifies,  and  fosters. 

Thus,  in  England,  the  right  of  primogeniture  applies  only 
to  the  real  property  of  intestates ;  but  the  effect  of  the  example 
and  sanction  of  the  law  is,  to  induce  even  those  who  make 
wills  to  devise  the  larger  share  of  all  the  property,  and  very 
often  the  whole  of  the  real  estate,  to  the  oldest  son.  Entails 
are  allowed  during  the  lifetime  of  any  number  of  persons  actu- 
ally in  being,  and  till  the  first  unborn  heir  shall  be  twenty-one 
years  old ;  *  and  further,  any  heir  of  entail  may  grant  leases 
which  will  be  good  against  the  future  owners  of  the  estate  for 
three  lives.  Numerous  other  impediments  are  created  to  the 
sale  or  division  of  real  estates,  and  the  people  are  thus  encour- 
aged to  carry  out  the  policy  of  the  law  by  settlements,  trust 
processes,  and  other  legal  devices ;  so  that,  at  any  one  time, 
the  real  property  of  the  kingdom  is  as  safely  tied  up  and 
guarded  against  the  extravagance  or  wilfulness  of  the  actual 
possessor,  as  if  perpetual  entail  were  permitted  there,  as  it  was 
till  recently  in  Scotland.  It  is  estimated,  that  more  than  one 
half  of  all  the  real  estate  in  the  latter  country  was  thus  pro- 
tected for  ever  against  division  or  alienation  from  particular 
families.  In  France,  on  the  other  hand,  where  the  law  requires 
the  larger  portion  of  the  property  to  be  distributed  equally,  the 
people  readily  acquiesce  in  the  principle,  and  very  seldom  ex- 
ercise their  power  of  increasing  the  share  of  a  favorite  child  by 
the  small  portion  which  they  are  allowed  to  give  according  to 
their  own  judgment  or  fancy ;  if  we  may  judge  from  the  Paris 
returns,  not  more  than  one  person  out  of  seven  makes  a  will  at 
all,  and  but  one  in  eighteen  of  these  testators  gives  the  reserved 
portion  to  one  of  his  legal  heirs,  so  as  to  lessen  the  number  of 

*  "An  English  gentleman,"  says  McCulloch,  "may  entail  an  estate  on  any  heir, 
or  series  of  heirs,  during  the  longest  life  of  certain  parties  named  or  clearly  specified 
in  the  deed,  and  alive  when  it  was  made,  and  till  twenty-one  years  after  the  death 
of  the  last  surviving  nominee.  It  is  immaterial  whether  the  parties  taken  as  nomi- 
nees be  parties  on  whom  the  estate  may  or  may  not  devolve." 


508  THE    SUCCESSION    TO    PROPERTY. 

parts  into  which  the  estate  is  divided,  the  others  preferring  to 
bestow  it  upon  strangers.  In  both  countries,  then,  the  consent 
of  the  people  carries  out  the  general  policy  of  the  law,  favoring 
or  preventing  the  distribution  of  property,  just  as  the  legisla- 
ture determines  in  those  cases  which  are  settled  by  the  law 
alone,  without  regard  to  the  wishes  of  the  owners. 

Here  in  America,  the  law  takes  the  middle  course  between 
the  English  and  the  French  policy.  The  custom  of  gavelkind 
is  the  rule,  unequal  distribution  is  the  exception.  Entails  are 
generally  more  restricted  than  in  England,  perpetual  entails 
being  never  allowed ;  and  all  minor  restrictions  on  the  division 
or  sale  of  landed  estates  being  taken  away,  the  partition  or 
transfer  of  real  property  is  effected  about  as  easily  as  that  of 
movables.  On  the  other  hand,  the  law  does  not  oblige  a  par- 
ent to  distribute  his  property  equally,  but  he  may  make  what 
distinctions  he  chooses,  and  may  virtually  disinherit  all  his 
children,  if  he  sees  fit.  But  the  custom  follows  the  law ;  many 
persons  do  not  make  a  will,  but  allow  the  law  to  take  its 
course.  A  testator  seldom  makes  a  very  unequal  distribution 
among  his  children  ;  but  if  he  is  childless,  he  often  disposes  of 
his  property  according  to  fancy,  the  expectations  of  more  dis- 
tant heirs  not  being  much  regarded. 

From  the  operation  of  these  laws  in  the  three  countries,  we 
might  naturally  expect  that  there  would  be  monstrous  inequal- 
ities in  the  distribution  of  wealth  in  England,  while  in  France 
and  this  country,  property  would  be  as  nearly  at  a  level  in  the 
community  as  it  can  be  brought  by  the  influence  of  legislation, 
[t  is  true,  that  the  several  systems  must  have  time  to  operate 
before  their  full  effects  can  be  perceived.  The  French  system 
did  not  come  into  full  effect  till  the  revolution  of  1789  ;  it  was 
one,  and  the  most  effective  of  all,  of  the  sweeping  measures 
adopted  at  that  epoch  for  the  sole  purpose  of  breaking  the 
power  of  the  feudal  aristocracy.  Only  two  generations  having 
elapsed  since  that  time,  it  might  be  supposed  that  the  splitting 
of  landed  estates  and  the  general  subdivision  of  property  have 
not  yet  been  carried  out  there  to  their  full  extent,  but  that  the 
equalization  of  wealth  is  destined  to  go  much  further. 

This  may  be  doubted ;  here  in  New  England,  where  the 
law  of  equal  partition,  applied  directly  only  to  the  property  of 
intestates,  but  governing  in  fact  the  descent  of  nearly  all  prop- 


THE  SUCCESSION  TO  PROPERTY.  509 

erty,  has  been  in  force  for  more  than  two  centuries,  the  land  is 
by  no  means  so  much  subdivided  as  in  France ;  and  we  have 
probably  more  persons  of  large  fortune,  in  proportion  to  the 
whole  population,  than  can  be  found  in  any  department  of  that 
country.  If  the  farm  is  already  so  small  that  it  will  not  sup- 
port more  than  one  family  with  the  average  degree  of  comfort 
among  landholders  of  the  same  class,  one  of  the  heirs  will  buy 
out  the  others,  who  will  use  the  price  of  their  shares  as  means 
for  establishing  themselves  in  some  non-agricultural  employ- 
ment, or  in  some  other  locality.  In  truth,  it  is  demonstrable 
that  there  must  be  this  limit  to  the  division  of  estates ;  for  if 
the  ground  owned  and  cultivated  by  a  small  proprietor  be  in- 
sufficient for  the  support  of  his  family,  his  poverty  will  oblige 
him  to  sell  it,  and  the  purchaser,  of  course,  must  be  a  person 
more  wealthy  than  himself.  It  is  idle,  then,  to  talk  of  the  risk 
of  the  whole  country  falling  into  the  hands  of  a  set  of  pauper 
proprietors  ;  the  first  symptoms  of  pauperism  will  oblige  them 
to  alienate  their  lands,  and  capitalists  will  reunite  the  farms 
which  had  been  injured  by  excessive  subdivision.  The  ability 
to  purchase  can  never  be  wanting,  as  all  the  natural  causes  of 
inequality  of  wealth  operate  without  check  during  each  com- 
plete generation ;  for  during  this  period,  they  are  not  counter- 
acted by  laws  regulating  the  succession  to  property.  We  can, 
therefore,  readily  admit  the  conclusion  which  has  been  drawn 
from  statistical  evidence,*  that  the  smaller  properties  in  France 
have  not  sensibly  diminished  in  size  during  the  last  thirty 
years.  Possibly  these  small  estates  may  increase  in  number 
through  the  breaking  up  of  larger  ones ;  but  they  will  not  be 

*  M.  Legoyt,  in  an  article  published  in  the  "Dictionary  of  Political  Economy,"  in 
1854,  says  that  he  has  examined  the  state  of  the  case  for  122  cantons  belonging  to 
twenty-seven  departments,  taken  indifferently  from  the  north,  south,  east,  west, 
and  centre  of  France,  and  has  established  the  following  results.  Forty-eight  cantons, 
belonging  to  eleven  different  departments,  were  divided,  in  1815,  into  2,754,885  es- 
tates or  separate  properties ;  and  in  1847,  they  had  only  2,438,062  such  estates,  being 
a  diminution  of  thirteen  per  cent  in  thirty-two  years.  In  the  seventy-four  other 
cantons,  belonging  to  sixteen  departments,  there  were  2,846,971  separate  proper- 
ties in  1815,  and  in  1847  there  were  3,096,235,  being  an  increase  of  less  than  nine 
per  cent  in  thirty -two  years.  Taking  the  aggregate  for  the  122  cantons,  which  com- 
prise nearly  a  third  part  of  all  France,  it  appears  that  there  were  5,601,856  estates  in 
1815,  and  only  5,534,297  in  1847,  being  a  diminution  of  over  one  per  cent.  It  is 
very  evident,  then,  that  the  morcellement  or  subdivision  of  landed  property  in  France 
has  reached  its  limit,  and  has  probably  begun  to  decline. 

43* 


510  THE  SUCCESSION  TO  PROPERTY. 

more  contracted  in  dimension,  for,  if  smaller,  they  would  not 
support  a  single  family. 

Among  the  ancients,  as  a  general  rule,  all  property,  on  the 
death  of  the  owner,  descended  as  a  matter  of  course  to  his 
children,  or,  if  he  had  none,  to  his  nearest  relatives.  In  Athens, 
Solon  confined  the  privilege  of  making  a  will  to  such  as  had 
no  children ;  before  his  time,  the  estate  was  necessarily  divided 
among  the  nearest  of  kin.  In  Rome,  for  a  long  period,  chil- 
dren could  be  disinherited  only  by  a  will  made  in  an  assembly 
of  the  people,  so  that  the  act  was  not  so  much  that  of  an  indi- 
vidual as  of  the  legislature.  In  the  later  ages  of  the  Empire, 
the  law  required  all  the  children  of  the  testator  to  be  named  in 
the  will,  and  if  any  one  of  them  was  disinherited,  that  special 
reasons  should  be  given  for  such  treatment.  And  the  heir  thus 
excluded  might  bring  an  action  to  test  the  validity  of  these 
reasons  ;  if  they  were  found  insufficient,  the  will  was  set  aside, 
and  the  disinherited  child  was  admitted  with  the  others  to 
what  the  law  termed  their  "  legitimate  portion  "  of  the  paternal 
estate.  Before  the  Code  and  the  Pandects  were  compiled, 
this  portion  amounted  to  one  fourth  of  the  whole.  Justinian 
decreed,  that,  if  there  were  not  more  than  four  children,  they 
should  succeed  as  of  right  to  a  third  part  of  the  property ;  if 
more  than  four,  they  received  at  least  one  half.  Among  the 
Germans,  also,  as  we  are  informed  by  Tacitus,  the  children 
were  protected  in  their  natural  heirship,  and  the  right  to  devise 
property  away  from  them  was  not  allowed.  Hence  it  appears 
that  the  French  law  of  compulsory  partition  is  no  innovation ; 
the  voice  of  antiquity  generally  is  in  its  favor,  as  consonant 
with  reason  and  the  natural  sense  of  equity. 

The  right  of  primogeniture,  and  the  privilege  of  entailing  es- 
tates, or  devising  them  to  a  series  of  heirs,  any  one  of  whom 
has  only  a  life-interest  in  the  property,  without  the  power  of 
alienating  it  or  burdening  it  with  debt,  had  their  origin  in  the 
feudal  system.  Before  the  rise  of  feudalism,  it  is  true,  males 
were  in  some  instances  preferred  to  females,  and  the  eldest  son 
had  some  advantages  over  his  brethren ;  thus,  according  to  the 
Jewish  law,  he  had  a  double  share,  a  peculiarity  which  was 
borrowed  from  the  Mosaic  code  for  a  short  time  by  the  first 
settlers  of  New  England.  In  Anglo-Saxon  times,  even  in  Old 
England,  all  the  property,  whether  real  or  personal,  was  divided 


THE    SUCCESSION    TO    PROPERTY.  511 

equally  among  the  sons,  if  there  were  any ;  if  not,  among  the 
daughters.  "  The  green  network  of  hedges  spread  over  the 
face  of  England,  that  peculiar  charm  of  English  land,"  is  attrib- 
uted by  Mr.  Laing  to  this  circumstance ;  it  could  have  been 
formed  only  by  a  nation  of  small  proprietors,  among  whom  the 
land  was  partitioned  off  by  these  enclosures  into  fields  of  very 
moderate  extent.  In  Scotland,  France,  and  Germany,  where 
the  feudal  system  gave  the  original  law  of  real  property,  these 
small  enclosures  do  not  exist ;  the  face  of  the  country  is  not 
marked  by  permanent  lines  of  division,  but  expands  in  broad 
and  unenclosed  districts.  In  England,  even  down  to  the  time 
of  Henry  II.,  personal  property  or  movables  were  divided  into 
three  equal  portions,  one  of  which  went  of  right  to  the  widow, 
another  to  the  lineal  descendants,  and  the  direction  of  the  third 
only  was  left  to  the  will  of  the  testator ;  if  there  were  no  chil- 
dren, the  widow  took  one  half,  and  the  other  half  might  be  dis- 
posed of  by  testament. 

But  generally,  at  the  time  of  the  Norman  conquest,  the  prin- 
ciples of  the  feudal  system  were  introduced  into  the  kingdom, 
and  an  entire  change  was  made  in  the  rules  which  determined 
the  succession  to  the  estates  of  persons  deceased.  The  system 
which  was  then  established  in  England,  though  it  has  under- 
gone some  changes  of  form,  has  continued,  on  the  whole,  with 
fewer  alterations  on  essential  points  than  in  any  other  country 
in  Europe.  It  was  eminently  favorable  to  the  nobles  and  the 
gentry,  and  its  continuance  has  kept  up  the  power  and  real  in- 
fluence of  the  aristocracy  in  Great  Britain,  while  almost  every- 
where else,  especially  during  the  present  century,  it  has  rapidly 
declined.  The  aggregation  of  real  property  into  immense 
landed  estates,  and  a  very  unequal  distribution  of  movable 
goods,  have  been  the  economical  results  of  this  preservation  of 
the  principles  of  the  feudal  system  relating  to  the  succession, 
after  every  other  trace  of  that  system  had  disappeared.  Eng- 
land is  now  as  much  an  aristocratic  country,  is  as  much  under 
the  dominion  of  her  great  barons,  as  it  was  in  the  days  of 
Warwick,  "  the  King-maker " ;  only  the  power  of  the  nobles 
now  rests,  not  on  their  arms,  but  on  their  wealth.  In  France 
and  most  other  kingdoms  on  the  Continent,  the  triangular  con- 
test between  the  people,  the  nobles,  and  the  sovereign  termi- 
nated in  a  partial  union  of  the  people  and  the  crown,  which 


512  THE    SUCCESSION    TO    PROPERTY. 

made  the  latter  practically  absolute,  and  enabled  it  either  to 
crash  the  aristocracy,  or  to  render  it  entirely  subservient  to  the 
throne.  But  in  England,  the  barons  and  the  gentry  wisely 
espoused  the  popular  cause,  and  took  the  lead  in  wresting  from 
the  crown  the  Great  Charter,  the  Statute  of  Treasons,  the  Pe- 
tition and  the  Bill  of  Rights,  and  the  other  time-honored  muni- 
ments of  English  freedom.  Thus  they  have  been  more  than 
a  match  for  the  crown,  and  have  never  entirely  lost  the  sup- 
port of  the  people.  They  have  never  become  unpopular  as  a 
class,  but  have  preserved  their  vast  estates  and  their  social 
weight  and  influence  along  with  them.  Their  political  privi- 
leges have  been  from  time  to  time  abridged ;  but  their  "  weight 
in  the  country,"  to  adopt  a  phrase  which  is  peculiarly  English, 
is  now  as  great  as  ever.  The  aristocracy  of  France,  on  the 
other  hand,  is  extinct,  that  of  Spain  is  effete,  that  of  Germany 
and  Italy  hardly  exists  except  in  name.  Its  influence  in  these 
countries  has  not  been  great  enough  to  preserve  the  laws  by 
which  alone  great  landed  estates  could  be  kept  together  and 
preserved  through  successive  generations ;  and  without  such 
estates,  political  power  is  an  accident,  and  titles  are  an  idle  dis- 
tinction. In  fact,  titles  have  usually  multiplied  as  the  power 
of  the  nobles  has  declined. 

Feudal  estates  were  held,  for  the  most  part,  on  condition  of 
rendering  military  service,  and  therefore  could  not  pass  into  the 
possession  of  females,  except  when  the  male  line  was  extinct. 
There  were  obvious  inconveniences,  also,  in  the  partition  of 
such  estates;  for  in  military  arithmetic,  the  sum  of  all  the 
parts  is  not  equal  to  the  whole.  A  great  baron,  who  could 
bring  a  thousand  armed  retainers  to  the  wars,  was  a  match  for 
at  least  twenty  of  the  inferior  nobles,  each  of  whom  could  not 
muster  more  than  a  hundred  followers.  "  The  security  of  a 
landed  estate,"  says  Adam  Smith,  "the  protection  which  its 
owner  could  afford  to  those  who  dwelt  on  it,  depended  on  its 
greatness.  To  divide  it  was  to  ruin  it,  and  to  expose  every 
part  of  it  to  be  oppressed  and  swallowed  up  by  the  incursions 
of  its  neighbors.  The  law  of  primogeniture,  therefore,  came 
to  take  place,  not  immediately  indeed,  but  in  process  of  time, 
in  the  succession  of  landed  estates,  for  the  same  reason  that  it 
has  generally  taken  place  in  that  of  monarchies,  though  not 
always  at  their  first  institution.  That  the  power,  and  conse- 


THE    SUCCESSION    TO    PROPERTY.  513 

quently  the  security,  of  the  monarchy  may  not  be  weakened  by 
division,  it  must  descend  entire  to  one  of  the  children.  To 
which  of  them  so  important  a  preference  shall  be  given,  must 
be  determined  by  some  general  rule,  founded,  not  upon  the 
doubtful  distinctions  of  personal  merit,  but  upon  some  plain 
and  evident  difference  which  can  admit  of  no  dispute.  Among 
the  children  of  the  same  family,  there  can  be  no  indisputable 
difference  but  that  of  sex  and  that  of  age.  The  male  sex  is 
universally  preferred  to  the  female,  and  when  all  other  things 
are  equal,  the  elder  everywhere  takes  the  place  of  the  younger. 
Hence  the  origin  of  the  right  of  primogeniture,  and  of  what  is 
called  lineal  succession."  Fortunately  for  the  English  nobil- 
ity, also,  the  law  of  England,  unlike  that  of  most  kingdoms  on 
the  Continent,  caused  the  title  as  well  as  the  property  to  de- 
scend only  to  the  oldest  son  ;  the  younger  children  were  mere 
commoners,  and  therefore  did  not  make  hereditary  honors 
cheap  by  multiplying  them,  or  uniting  them  with  poverty. 
The  younger  branches  of  the  family  found  their  own  impor- 
tance enhanced  by  ministering  to  the  greatness  of  the  head  of 
their  house.  If  they  acquired  wealth  and  reputation  for  them- 
selves, they  buttressed  the  strength  of  the  main  trunk  in  their 
family  pedigree ;  if  they  were  poor  and  weak,  they  were  lost 
in  the  crowd,  and  cast  no  shade  on  the  splendor  of  the  house 
whence  they  originated. 

But  it  is  not  enough  to  satisfy  the  pride  and  ambition  of  the 
nobles,  that  the  estate  should  be  kept  together,  and  in  the  pos- 
session of  one  person.  Means  must  be  devised  also  to  prevent 
it  from  being  alienated,  or  passing  out  of  the  family  alto- 
gether. The  eldest  son  might  be  a  sot,  a  spendthrift,  or  a 
simpleton,  from  whose  witless  grasp  the  broad  paternal  acres 
might  slip  into  the  hands  of  parasites,  gamblers,  and  creditors. 
To  obviate  such  a  misfortune,  the  property  was  entailed  on  a 
succession  of  heirs,  no  one  of  whom  had  a  right  to  spend  more 
than  its  annual  income,  or  to  burden  it  with  debt.  Besides, 
attainder  for  treason  or  felony  might  cause  a  forfeiture  of  the 
estate  to  the  crown ;  but  if  the  present  possessor  held  only  a 
life-interest  in  it  under  an  entail,  the  property  would  pass  at 
his  death,  in  spite  of  the  attainder,  to  the  next  heir,  whose 
rights  could  not  be  impaired  by  the  criminality  of  a  previous 
life-holder,  any  more  than  by  that  of  a  steward  or  a  tenant. 


514  THE    SUCCESSION    TO    PROPERTY. 

The  property  was  not  his,  either  to  be  forfeited  or  to  be  alien- 
ated by  sale  or  debt.  Of  course,  it  was  for  the  interest  of  the 
crown  to  prevent  entails,  but  of  the  nobles  and  other  great 
landholders  to  multiply  them,  and  to  render  them  strict  and 
perpetual.  Under  Edward  I.,  when  the  power  of  the  barons 
was  nearly  at  its  height,  they  succeeded  in  passing  the  statute 
entitled  De  donis  conditionalibus,  which  established  a  system 
of  perpetual  entail,  each  successive  heir  receiving  the  land  only 
under  condition,  as  the  lawyers  say,  of  not  alienating  it,  but  of 
transmitting  it  unimpaired  to  his  successor.  Such  laws,  as 
Adam  Smith  remarks,  "  are  founded  upon  the  most  absurd  of 
all  suppositions,  —  the  supposition  that  every  successive  gen- 
eration of  men  have  not  an  equal  right  to  the  earth  and  to  all 
that  it  possesses ;  but  that  the  property  of  the  present  genera- 
tion should  be  restrained  and  regulated  according  to  the  fancy 
of  those  who  died,  perhaps,  five  hundred  years  ago."  But  the 
statute  of  Edward's  parliament  remained  in  force  for  over  two 
centuries,  which  was  more  than  enough  to  manifest  its  injuri- 
ous results.  "  The  inconvenience  thereof  was  great,"  says 
Lord  Bacon  ;  "  for  by  that  means,  the  land  being  so  sure  tied 
upon  the  heir  as  that  his  father  could  not  put  it  from  him,  it 
made  the  son  to  be  disobedient,  negligent,  and  wasteful ;  often 
marrying  without  the  father's  consent,  and  to  grow  insolent  in 
vice,  knowing  that  there  could  be  no  check  of  disinheriting 
him.  It  also  made  the  owners  of  the  land  less  fearful  to  com- 
mit murders,  felonies,  treasons,  and  manslaughters;  for  that 
they  knew  none  of  these  acts  could  hurt  the  heir  of  his  inherit- 
ance. It  hindered  men  that  had  entailed  lands,  that  they 
could  not  make  the  best  of  their  lands  by  fine  and  improve- 
ment, for  that  none,  upon  so  uncertain  an  estate  as  for  term  of 
his  own  life,  would  give  him  a  fine  of  any  value,  nor  lay  any 
great  stock  upon  the  land,  that  might  yield  rent  improved. 
Lastly,  those  entails  did  defraud  the  crown  and  many  subjects 
of  their  debts ;  for  that  the  land  was  not  liable  longer  than  his 
own  lifetime;  which  caused  that  the  king  could  not  safely 
commit  any  office  of  account  to  such  whose  lands  were  en- 
tailed, nor  other  men  trust  them  with  loan  of  money." 

These  inconveniences,  and  the  decline  of  the  power  of  the 
nobles  under  the  Tudors,  enabled  those  arbitrary  monarchs  to 
do  away  practically  with  the  law  of  perpetual  entail ;  though 


THE    SUCCESSION    TO    PROPERTY.  515 

not  repealed  by  the  legislature,  it  was  nullified  by  a  contriv- 
ance of  the  lawyers  and  the  courts,  which  enabled  the  party 
in  possession,  by  a  fictitious  suit,  to  bar  the  entail,  and  part 
with  the  estate  by  an  ordinary  conveyance.  This  method  of 
destroying  perpetuities  has  been  simplified  and  extended  by 
acts  of  Parliament  during  the  last  quarter  of  a  century,  so  as 
to  establish  the  law  of  entail  on  its  present  footing,  the  owner 
of  real  estate  being  allowed,  as  already  mentioned,  only  to  tie 
it  up  during  any  number  of  lives  already  in  being,  and  for 
twenty-one  years  after.  In  Scotland,  however,  the  nobility 
and  gentry  having  suffered  much  from  forfeiture  during  the 
seventeenth  century,  a  law  was  passed  in  1685,  authorizing 
landholders  to  entail  their  estates  in  perpetuity ;  and  five  years 
afterwards,  another  statute  expressly  exempted  entailed  es- 
tates from  confiscation,  on  the  ground  that  every  man  ought 
to  "  suffer  for  his  own  fault,  and  not  the  innocent  with  or  for 
the  guilty."  Under  these  acts,  more  than  half  of  all  Scotland 
was  fettered  by  strict  entail  for  ever ;  *  and  though  the  mani- 
fest evils  of  such  restraint  caused  the  statesmen  and  lawyers  of 
the  kingdom  to  make  several  vigorous  efforts  to  change  the 
law,  the  land-owners  successfully  resisted  them  till  a  few  years 
ago,  when  Parliament  passed  an  act  which  carried  into  Scot- 
land all  the  important  features  of  the  English  system  of  en- 
tail. 

As  political  power  and  social  influence  in  England  have  al- 
ways followed  the  ownership  of  real  estate,  all  the  contrivan- 
ces of  legal  ingenuity  have  been  brought  into  play  to  prevent 
the  division  or  alienation  of  landed  property,  and  to  preserve 


*  Bnt  the  Scotch  mode  of  regulating  the  distribution  of  personal  property  offers  a 
strange  contrast  with  this  custom  of  tying  up  the  real  estate.  "  The  law  of  Scot- 
land," says  McCulloch,  "in  regard  to  the  devising  of  movables,  is  at  present  nearly 
identical  with  the  old  law  of  England.  In  the  former,  if  a  father  die  leaving  a  wid- 
ow and  children,  whether  of  the  last  or  any  former  marriage,  the  children  succeed 
to  a  third  part  of  his  movable  property  as  legitim  (from  the  kgitima  pars  of  the  Ro- 
mans), and  the  widow  to  another  third  part  If  there  be  no  widow,  or  if  she  have 
renounced  by  her  marriage  contract  the  jus  relictce,  the  legitim  of  the  children 
amounts  to  half  the  personal  estate.  And  it  is  further  to  be  observed,  that  the  right 
of  the  children  to  claim  their  legitim  cannot  be  defeated  by  testament ;  though  it 
may  be  defeated  by  the  father  converting  his  movable  into  fixed  property,  and  by 
his  executing  a  de  presenti  conveyance  of  his  whole  movable  estate  to  others." 

This  is  very  nearly  the  French  law  of  compulsory  partition,  though  applied  only 
to  personal  property. 


516  THE  SUCCESSION  TO  PROPERTY. 

the  nominal  ownership  in  the  family,  even  after  the  substance 
has  been  dissipated,  or  the  estate  so  heavily  burdened  with 
mortgages  and  other  encumbrances  that  the  ostensible  proprie- 
tor can  derive  little  or  no  income  from  it.  Since  the  right  of 
primogeniture  takes  effect  only  in  case  of  intestacy,  so  that  it 
can  be  defeated  by  making  a  will,  and  as  an  entail  is  valid 
only  for  a  limited  period,  it  would  seem  that  the  property  must 
be  frequently  liable  to  pass  out  of  the  family.  It  is  possible  to 
make  entails  effectual  for  a  century  or  more ;  but  McCulloch 
says,  "  this  is  not  often  done,  and  fifty  or  sixty  years  may,  per- 
haps, be  assumed  as  their  usual  average  duration."  But  the 
aristocratic  feeling  prevails  so  generally  through  successive 
generations,  that  no  sooner  is  one  deed  of  entail  discharged, 
than  it  is  renewed  by  the  parties  interested  in  the  estate ;  and 
thus,  with  the  aid  of  marriage  settlements,  trust  deeds,  and 
other  similar  devices,  nearly  all  the  landed  property  in  Eng- 
land, at  any  one  moment,  is  as  effectually  tied  up  as  if  it  were 
subjected  to  perpetual  entail. 

Mr.  Byles,  an  English  sergeant-at-law,  remarks,  "  estates  are 
kept  in  families,  not  by  the  law  of  entail,  but  by  the  power 
which  exists  of  creating  life-estates.''  When  a  land-owner 
marries,  he  wishes  to  make  provision  for  his  wife  and  the  issue 
of  the  marriage  after  his  death ;  and  to  do  so,  he  makes  over 
his  estate  to  the  children  of  the  marriage  successively,  reserv- 
ing only  a  life-interest  in  the  property  for  himself;  in  legal 
phrase,  "  he  becomes  tenant  for  life,  his  son  tenant  in  remain- 
der. As  soon  as  the  eldest  son  comes  of  age,  he  can  make 
way  with  his  interest,  just  as  his  father  could  before  him ;  or 
father  and  son  may  join,  and  sometimes  do  join,  in  alienating 
the  estate  altogether.  But  in  practice,  the  more  usual  course 
is  this :  the  son  is  about  to  marry,  and  is  advised,  or  chooses, 
to  settle  a  life-estate  on  himself,  and  to  provide,  after  his  death, 
for  his  wife  and  the  issue  of  the  marriage.  He  resettles  the 
estate  "  ;  that  is,  he  takes  it  out  of  the  market  again,  by  tying 
it  up  against  division  or  alienation  for  another  generation. 
"  And  so,  in  fact,  estates  are  kept  together  and  resettled  every 
generation,  by  the  voluntary  act,  or,  if  you  please,  the  family 
pride,  of  their  owners,  and  not  by  the  law  of  entail.  Indeed, 
personal  property  may  be  settled  by  means  of  life-estates  as 
effectually  as  landed  property,  and  the  fund  may  be,  and  often 


THE    SUCCESSION    TO    PROPERTY.  517 

is,  tied  up  just  as  long ;  although  such  a  thing  as  an  estate  tail 
in  personal  property  never  existed  at  any  period  of  our  law." 

In  one  respect,  indeed,  this  mode  of  keeping  the  property 
together  and  preventing  it  from  going  out  of  the  family  by  a 
perpetual  series  of  marriage  settlements,  trust-deeds,  entails, 
and  other  legal  devices,  is  more  injurious  in  its  consequences 
than  the  mode  of  tying  it  up  once  for  all,  and  for  ever,  by  a 
perpetual  entail.  In  the  latter  case,  unless  power  is  granted 
by  a  special  statute  for  the  purpose,  there  is  no  power  of  bur- 
dening or  encumbering  the  estate  by  mortgages,  rent-charges, 
rights  of  dower,  settlement  of  annuities,  long  leases  at  low  rents 
purchased  by  a  heavy  payment  outright  at  the  commencement 
of  the  lease,  and  other  modes  of  consuming  the  income  in  ad- 
vance, while  the  estate  is  nominally  intact.  When  the  heir 
under  a  perpetual  entail  comes  into  possession,  he  finds  that, 
though  he  cannot  divide  or  sell  the  estate,  or  make  any  provis- 
ion from  it  for  his  widow  or  unportioned  children,  he  has,  at 
least,  the  whole  income  of  it  undiminished  for  his  lifetime.  He 
does  not  find  himself  in  the  mortifying  and  embarrassed  condi- 
tion, of  nominally  owning  an  estate  of  ,£10,000  a  year,  with 
an  establishment  of  corresponding  splendor  and  magnitude  to 
be  kept  up,  while  his  actual  income  does  not  exceed  one  or 
two  thousand  pounds.  But  this  is  too  frequently  his  case,  if 
the  estate,  instead  of  being  under  perpetual  entail,  has  been 
settled  and  resettled  again  and  again ;  if  one  set  of  fetters  upon 
it  has  been  removed  every  generation  or  two,  only  to  make 
room  for  another.  For  at  each  period  of  renewal  or  settlement, 
there  have  been  debts  to  be  secured,  wives  to  be  dowered, 
daughters  and  younger  sons  to  be  provided  for,  and  loans  to 
be  obtained  on  mortgage  in  order  to  erect  buildings  or  effect 
other  improvements.'  Family  pride  prevents  these  charges 
from  being  met  in  the  natural  manner,  by  selling  a  portion  of 
the  estate ;  the  whole  number  of  acres  must  be  retained,  but 
under  an  encumbrance  which  annually  subtracts  a  fixed  sum 
from  the  income.  At  each  successive  period,  as  a  general  rule, 
the  number  and  amount  of  these  encumbrances  are  increased, 
till  they  at  last  absorb  the  greater  part  of  the  income.  "  Nor  is 
even  this  all,"  says  Mr.  Byles ;  "  men  like  to  round  their  estates. 
They  buy  up  and  engross  the  little  neighboring  properties,  and 
charge  the  whole  estate  with  money  to  pay  for  the  new  pur- 
44 


518  THE    SUCCESSION    TO    PROPERTY. 

chase.  Thus  the  complication  of  settlements  and  charges  em- 
braces and  corrupts  even  the  sound  parts,  like  the  hideous  roots 
of  a  cancer."  *  In  respect  to  one's  worldly  prospects,  the 
greatest  misfortune  which  can  happen  to  a  man  in  Great  Brit- 
ain is,  to  be  born  heir  to  a  large  and  heavily  burdened  estate. 

A  strict  system  of  perpetual  entail  opposes  an  almost  insur- 
mountable barrier  to  making  improvements  upon  the  land, 
since  each  holder  of  a  life-interest  in  the  estate  is  unwilling  to 
expend  any  portion  of  the  income  upon  it,  because  the  benefi- 
cial consequences  of  such  expenditure  will  be  reaped  chiefly 
by  his  successors.  Leaseholders  for  short  terms,  also,  cannot 
be  expected  to  make  permanent  improvements,  the  advantages 
of  which  will  be  chiefly  experienced  by  the  owners  of  the  prop- 
erty, and  by  those  who  may  come  after  them  under  subsequent 
leases,  with  whom  they  have  no  tie  of  a  common  interest,  af- 
fection, or  kindred.  These  evils  of  the  Scotch  system  being 
great  and  notorious,  Parliament  applied  a  partial  remedy,  first 
in  1770,  and  again  in  1824.  The  former  act  authorized  the 
life-holder,  in  spite  of  any  prohibition  in  the  deed  of  entail,  to 
grant  leases  for  ninety-nine  years  of  small  patches  of  ground, 
not  exceeding  five  acres,  for  the  purpose  of  building ;  it  also 
empowered  him  to  burden  the  estate  to  the  amount  of  six  years' 
rent,  for  agricultural  improvements  and  the  erection  of  a  man- 
sion-house, provided  that  he  contributed  out  of  his  own  income 
towards  these  objects  one  fourth  as  much  as  was  charged  upon 
the  estate.  The  act  of  1824  made  a  still  greater  innovation ; 
it  allowed  the  possessor,  notwithstanding  any  prohibition  in 
the  deed,  to  make  provision  out  of  the  estate  for  his  widow 
and  younger  children  ;  and  the  limit  of  the  encumbrances  thus 
authorized,  under  both  acts,  was  fixed  at  two  thirds  of  the  net 
annual  income.  Thus,  as  McCulloch  remarks,  "  the  income 
of  the  heir  in  possession  of  an  entailed  estate  may  be  reduced 
to  a  third  part  of  its  net  rental ;  and  out  of  this  portion,  he  has 
to  keep  up  the  mansion-house,  and  to  defray  the  whole  expense 

•  Few  readers  can  have  forgotten  the  saddest  story  in  all  literary  biography,  —  that 
of  Sir  Walter  Scott  virtually  killing  himself  by  over-exertion,  and  reducing  the  finest 
genius  since  Shakespeare's  day  to  idiocy,  in  the  vain  attempt  to  pay  off  vast  encum- 
brances on  the  large  landed  estate  which  he  had  imprudently  collected,  in  the  hope 
of  "founding  a  family"  that  could  hold  its  place  for  all  time  among  the  landed  gen- 
try of  Scotland.  And  that  family,  though  he  left  four  children,  two  of  whom  were 
sons,  —  where  is  it  ? 


THE    SUCCESSION    TO    PROPERTY.  519 

of  managing  the  estate,  including  the  losses  incurred  by  the 
failure  of  tenants,  and  such  like  contingencies.  Hence  it  fol- 
lows, that  the  free  disposable  income  of  an  heir  of  entail  in  pos- 
session of  an  estate  of  £>  12,000  a  year  may  not,  and  sometimes 
does  not,  exceed  ,£1,500  or  £  2,000  a  year."  No  wonder, 
then,  that  Parliament  came  at  last  to  believe,  that  a  system  of 
perpetual  entail  leading  to  such  consequences  was  not  worth 
keeping  up,  and  abrogated  it  by  the  law  of  1848,  which  permit- 
ted all  perpetuities  to  be  broken,  and  assimilated  the  Scotch  to 
the  English  system  of  entail. 

Two  peculiar  circumstances  tended  to  increase  the  burdens 
upon  real  estate  in  Ireland.  Far  the  larger  portion  of  the 
island  had  been  confiscated  since  the  reign  of  Henry  VIII., 
and  the  crown  had  granted  immense  estates  out  of  the  forfeited 
lands  to  courtiers,  military  officers,  and  noblemen,  who  pre- 
ferred to  live  in  England,  and  to  let  their  property  on  long 
leases  to  others,  who  assumed  all  the  care  of  management.  In 
Great  Britain,  property  can  be  leased  only  for  a  limited  period 
of  years ;  but  in  Ireland,  it  has  been  the  custom  to  grant  a  lease 
for  a  certain  number  of  lives,  with  a  covenant  for  perpetual  re- 
newal, on  the  payment  of  a  moderate  fine  on  the  fall  of  each 
life.  Thus  the  lands  are  virtually  leased  in  perpetuity,  and  the 
amount  so  leased,  says  Mr.  Pim,  "  is  very  great,  perhaps  as 
much  as  one  half  of  Ireland."  This  is  not  all ;  the  first  lease- 
holder on  a  perpetuity  again  lets  out  the  land  to  others,  who  in 
their  turn  underlet  it  in  smaller  portions,  an  increased  rent  be- 
ing charged  at  each  remove.  These  intermediate  landlords, 
or  "  middlemen  "  as  they  are  termed,  and  perpetual  leases,  are 
two  peculiar  encumbrances  upon  Irish  estates,  in  addition  to 
the  marriage  settlements,  mortgages,  heavy  annuities,  and  fam- 
ily charges,  with  which  they  are  as  heavily  burdened  as  Eng- 
lish or  Scotch  property. 

The  impoverishment  of  the  land,  the  decline  in  value  of  real 
estate,  the  distress  of  the  landlord,  and  the  misery  of  the  ten- 
antry, are  the  inevitable  results  of  this  condition  of  things. 
The  present  landlord  has  no  interest  in  its  improvement,  except 
so  far  as  he  may  wish  to  benefit  the  heir  at  law  who  is  to  suc- 
ceed him.  If,  as  is  generally  the  case,  he  has  daughters  and 
younger  sons  to  provide  for,  whatever  savings  he  can  make 
from  income  he  will  not  expend  upon  the  land,  but  will  invest 


520  THE    SUCCESSION    TO    PROPERTY. 

in  other  forms,  where  they  will  be  subject  to  his  control  by  will. 
Thus  the  fences  and  buildings  are  allowed  to  decay,  drainage 
is  neglected,  the  ground  is  scourged  with  exhausting  crops,  and 
the  tenants  in  possession  are  oppressed  with  the  heaviest  pos- 
sible rents,  the  object  being  to  obtain  the  utmost  present  gain 
from  the  estate,  at  whatever  injury  to  the  future  value.  Mr. 
Pirn  describes  a  "  by  no  means  uncommon  case,"  in  which  the 
heir  comes  into  possession  of  a  deeply  encumbered  estate,  when 
already  "  burdened  with  debts  of  his  own,  contracted  on  the 
faith  of  his  inheritance,  and  borrowed  on  terms  of  usurious  in- 
terest proportionate  to  the  risk  incurred.  In  what  difficulties  is 
he  at  once  involved,  this  owner  for  life  of  a  large  tract  of  coun- 
try, with  a  long  rent-roll,  but  in  fact  a  small  property !  He 
cannot  maintain  his  position  in  society  without  spending  more 
than  his  income ;  debts  accumulate  ;  he  borrows  on  the  credit 
of  his  life-interest,  and  insures  his  life  for  the  security  of  the 
lender.  He  lets  to  the  highest  bidder,  without  regard  to  char- 
acter or  means  of  payment.  His  object  is  immediate  income, 
not  the  future  value  of  the  property.  If  the  tenants  are  with- 
out leases,  he  raises  their  rents.  If  leases  fall  in,  he  cannot  af- 
ford to  give  the  preference  to  the  last  occupier."  He  cannot  sell 
a  part  of  the  property,  though  the  proceeds  of  such  sale  might 
greatly  improve  the  value  of  the  remainder.  "  Perhaps,  with 
all  his  exertion,  he  is  unable  to  pay  the  interest,  or  put  off  his 
creditors.  Proceedings  are  commenced  against  him,  and  the 
estate  passes,  during  his  lifetime,  under  the  care  of  the  worst 
possible  landlord,  —  a  receiver  under  the  Court  of  Chancery." 
"  In  very  many  cases,"  says  a  respectable  witness,  "  where  en- 
cumbered estates  have  fallen  under  the  management  of  law 
courts,  the  district  has  usually  rather  resembled  one  which  has 
been  plundered  by  an  enemy,  than  one  under  an  enlightened 
government,  in  a  country  long  exempt  from  the  calamities  of 
war." 

These  evils  having  become  intolerable,  Parliament  at  last 
applied  a  remedy,  in  1848,  by  creating  by  statute  the  commis- 
sion for  the  sale  of  encumbered  estates  in  Ireland.  Under  this 
act,  an  encumbered  estate,  by  consent  of  the  owner,  or  on  ap- 
plication of  the  mortgagees  or  other  creditors,  might  be  at  once 
released  from  all  burdens  by  the  high  authority  of  Parliament, 
and  sold  to  the  highest  bidder,  with  an  indefeasible  title  good 


THE    SUCCESSION    TO    PROPERTY.  521 

against  all  the  world.  The  proceeds  of  the  sale  are  paid  into 
the  Court  of  Chancery,  to  be  distributed  by  that  court,  as 
equity  may  require,  between  the  owner,  his  creditors,  the  va- 
rious encumbrancers,  the  heirs  at  law,  and  all  other  interested 
parties.  Thus  the  process  was  an  easy  and  simple  one ;  the 
legal  burdens  were  all  taken  off  the  land,  and  applied  only  to 
the  money  which  was  received  from  the  sale  of  it,  the  estate 
itself  being  sold  to  the  greatest  possible  advantage,  because 
free  from  all  encumbrance,  resting  upon  the  best  of  all  titles,  a 
parliamentary  one,  and  being  divided  into  such  portions  as 
would  best  suit  the  convenience  of  the  purchasers.  Before  this 
act  was  passed,  the  mortgages  and  other  burdens  covering  the 
whole  property  equally,  and  even  rendering,  through  their  com- 
plication, the  title  to  it  very  doubtful,  it  was  impossible  to  sell 
a  portion  of  the  property ;  it  could  only  be  disposed  of  as  a 
whole,  and  with  a  title  so  uncertain,  and  law  expenses  so 
heavy,  that  it  would  bring  but  a  small  part  of  its  real  value. 

The  proceedings  under  this  statute  afford  curious  evidence 
of  the  extent  to  which  real  property  in  Ireland  had  become  en- 
cumbered. Up  to  October,  1854,  upwards  of  two  millions  of 
acres  had  changed  hands  under  the  authority  of  this  commis- 
sion;  it  had  sold  1,152  estates  to  5,613  purchasers,  for 
£  13,509,303.  Of  these  estates,  364  had  been  in  Chancery 
over  five  years,  167  over  ten  years,  17  over  thirty-five  years, 
and  9  over  fifty  years.  In  about  five  years,  more  than  one 
tenth  of  all  the  landed  property  in  the  island  had  passed 
through  the  hands  of  this  commission.  How  much  more  is 
to  undergo  the  same  process,  it  is  impossible  to  tell ;  but  the 
proceedings  have  been  delayed,  in  order  to  avoid  crowding  so 
much  land  upon  the  market  at  once  as  to  depress  the  price. 
One  of  the  most  significant  facts  that  appear  from  these  re- 
turns is,  that  the  land  sold  has  been  divided  into  about  five 
times  as  many  distinct  estates  as  before.  The  amount  of  the 
encumbrances  was  such,  that  only  a  small  portion  of  the  pro- 
ceeds of  the  sale  of  the  property  remained  for  the  benefit  of  its 
former  nominal  owners. 

I  have  entered  into  this  detailed  account  of  the  state  of 

landed  property  in  Great  Britain  and  Ireland,  as  affected  by 

the  tenure  of  land  and  by  the  laws  regulating  the  succession 

to  the  estates  of  persons  deceased,  because  it  seems  to  me  to 

44* 


522  THE  SUCCESSION  TO  PROPERTY. 

afford  almost  a  complete  explanation  of  those  striking  peculi- 
arities in  the  social  and  economical  condition  of  the  people  of 
that  country,  by  which  they  are  distinguished  from  all  other 
nations,  and  which  have  suggested  those  theories  in  political 
economy  that  affect  the  whole  aspect  of  the  science  as  it  is 
taught  by  the  English  authorities  upon  the  subject.  Such  the- 
ories as  those  of  Malthus  upon  population,  Ricardo  upon  rent 
and  profits,  Adam  Smith  upon  free  trade,  and  McCulloch  upon 
this  very  matter  of  the  succession  to  property,  must  have  origi- 
nated from  experience  in  an  anomalous  state  of  society,  from 
observation  of  the  laws  of  wealth  as  exemplified  in  their  opera- 
tion under  very  peculiar  circumstances.  Any  refutation  of 
them  would  be  insufficient  which  did  not  point  out  the  phe- 
nomena by  which  they  were  suggested,  and  offer  some  expla- 
nation of  these  phenomena  which  should  be  consistent  with 
general  principles  and  facts  of  universal  experience. 

The  avowed  objects  of  the  English  laws  which  regulate  the 
descent  of  property  are,  the  concentration  of  wealth  in  the 
hands  of  a  few,  and  the  support  of  an  hereditary  territorial  aris- 
tocracy. These  ends  have  been  obtained.  The  inequality  in 
the  distribution  of  wealth  in  England  is  greater  than  in  any 
other  civilized  nation ;  and  her  nobility  and  gentry  are  wealth- 
ier, more  intelligent,  more  highly  cultivated,  more  influential, 
and  more  secure  in  the  possession  of  their  power  and  property, 
than  the  corresponding  classes  now  existing,  or  that  ever  have 
existed,  in  any  country  in  the  world.  Five  noblemen,  the 
Marquis  of  Breadalbane,  the  Dukes  of  Argyle,  Athol,  Suther- 
land, and  Buccleuch,  own  perhaps  one  fourth  of  all  Scotland.* 
I  have  already  quoted  the  assertion  of  M.  de  Lavergne,  that 
2,000  proprietors  possess  among  them  one  third  of  the  land 

*  The  estate  of  the  Duke  of  Sutherland  comprises  about  700,000  acres,  or  consid- 
erably more  than  1,000  square  miles.  The  domains  of  the  Marquis  of  Breadal- 
bane, says  M.  de  Lavergne,  "  extend  one  hundred  English  miles,  or  forty  leagues, 
in  length,  and  reach  nearly  from  sea  to  sea."  Both  of  these  immense  estates  have 
been  cleared  of  their  ancient  inhabitants,  and  the  Highland  clans  by  which  they 
were  not  only  occupied,  but  owned,  have  ceased,  properly  speaking,  to  exist ;  they 
have  been  driven  into  exile,  or  have  been  exterminated  by  privation  and  hardships. 
A  few  remnants  of  them  inhabit  some  miserable  fishing  hamlets  on  the  sea-shore, 
and  swell  the  bulk  of  the  destitute  classes  in  the  great  cities.  "  By  far  the  wealth- 
iest proprietor  in  the  Lowlands  is  the  Duke  of  Buccleuch,"  whose  estates  extend 
over  several  counties,  and  whose  palace  at  Dalkeith  is  an  establishment  of  regal 
magnificence. 


THE    SUCCESSION    TO    PROPERTY.  523 

and  total  revenue  of  the  three  kingdoms  of  England,  Scotland, 
and  Ireland.  It  is  admitted  that,  up  to  1848,  there  were  not 
more  than  5,000  Scotch,  and  8,000  Irish  land-owners;  and 
good  reasons  have  been  adduced  (page  195)  for  the  opinion, 
that  there  are  only  46,000  who  should  be  classed  as  landed 
proprietors  in  England.  About  60,000  families,  then,  own  ah1 
the  territory  which  is  occupied  by  over  27  millions  of  inhabit- 
ants. 

In  France,  on  the  other  hand,  under  the  laws  requiring  the 
equal  partition  of  the  property  of  persons  deceased,  the  aristoc- 
racy have  virtually  ceased  to  exist,  and  out  of  a  population  of 
about  thirty-five  millions,  at  least  five  and  a  half  millions  are 
landholders.  Considering  these  as  heads  of  families,  and  al- 
lowing on  an  average  four  persons  to  a  family,  we  find  that 
twenty-two  millions,  or  nearly  two  thirds  of  the  whole  popula- 
tion, are  owners  of  the  soil.  Making  the  same  allowance  for 
the  families  of  British  landholders,  we  have  but  240,000  indi- 
viduals, or  about  the  112th  part  of  the  people,  who  share 
among  them  the  total  rental  of  the  United  Kingdom,  which 
amounts  to  more  than  sixty  millions  sterling.  In  France,  it  is 
estimated  that  there  are  two  and  a  half  millions  of  proprietors 
whose  estates  do  not  exceed  an  average  of  ten  acres  each,  and 
three  millions  of  others  whose  properties  average  about  thirty 
acres. 

These  results  of  a  comparison  of  the  two  countries  in  re- 
spect to  the  distribution  of  landed  property  are  very  startling, 
and  would  almost  exceed  belief,  if  it  were  not  evident  that  the 
policy  of  the  law  so  strongly  favors  aggregation  in  the  one 
case,  and  partition  in  the  other,  that  such  consequences,  sooner 
or  later,  are  inevitable.  A  race  of  husbandmen  living  on  their 
own  small  properties,  and  constituting  what  was  called  the 
yeomanry  of  the  land,  were  formerly  the  principal  cultivators 
in  England  and  Wales.  The  larger  portion  of  the  population 
were  then  engaged  in  tilling  the  ground,  which  then  produced 
more  than  enough  for  the  national  consumption,  and  there 
were  no  complaints  that  the  country  was  over-peopled.  But 
the  race  of  small  proprietors  is  now  extinct ;  large  estates  and 
large  farms  have  absorbed  the  small  ones,  and  the  agricultur- 
ists, who  were  once  two  thirds,  now  form  but  one  fifth,  of  the 
whole  population.  The  doctrine  of  the  dominant  school  of 


524  THE    SUCCESSION    TO    PROPERTY. 

English  economists  is,  that  fanning  must  be  carried  on  like 
every  other  trade ;  that  large  farms,  like  large  machine-shops, 
large  cotton-mills,  and  large  iron-works,  can  produce  cheaper 
than  small  ones,  and  therefore,  very  properly,  supersede  and 
obliterate  them.  Whatever  may  be  thought  of  the  correctness 
of  this  doctrine,  it  has  certainly  been  carried  out  in  practice. 
According  to  the  census  of  1851,  there  are  in  Great  Britain, 
1,132  farms  containing  each  1,000  acres  and  upwards,  and 
2,816  others  which  are  over  600  acres  in  extent.  There  are 
but  190,573  farms  of  less  than  100  acres  each,  while  in  France, 
as  we  have  just  seen,  there  are  two  and  a  half  millions  which 
do  not  exceed  ten  acres. 

The  chief  argument  in  favor  of  this  "  monster-farm  "  system 
is,  that  it  economizes  labor,  and  admits  the  application  of  cap- 
ital on  a  large  scale,  so  that  machinery  can  take  the  place  of 
human  beings,  great  operations  in  draining  and  manuring  can 
be  effected,  and  the  most  improved  processes  of  agriculture  can 
be  carried  out  in  their  full  perfection.  It  may  be  so,  if  by  rent 
we  understand  only  that  portion  of  the  produce  which  accrues 
to  the  exclusive  benefit  of  the  landlord.  In  many  cases,  his 
estate  will  give  him  a  larger  income  if  devoted  to  pasturage 
than  to  tillage ;  for  in  the  former  case,  only  a  few  herdsmen 
are  required  to  perform  all  the  labor  that  is  needed  on  a  thou- 
sand acres.  But  it  does  not  produce  so  much  food ;  it  does 
not  afford  sustenance  to  so  many  people.  He  who  turns  his 
land  into  a  sheep-pasture  or  a  deer-park,  acts  on  the  same  prin- 
ciple as  the  Dutch,  when,  having  a  monopoly  of  the  trade  in 
spices,  they  destroyed  a  portion  of  what  they  imported  in  or- 
der to  enhance  the  price  of  the  remainder.  It  behooves  the 
landholders  who  reason  in  this  manner  to  ask  themselves,  if 
they  do  not  lose  as  much  by  the  increased  cost  of  pauperism 
as  they  may  possibly  gain  by  the  enhancement  of  their  rents. 
In  England  alone,  the  amount  levied  for  the  poor  rate  in 
1850  exceeded  seven  and  a  quarter  millions  sterling  (about 
$  36,000,000)  ;  the  average  number  of  paupers  receiving  relief 
on  any  one  day  was  almost  exactly  one  million ;  and  the 
whole  number  of  different  persons  relieved  during  some  part  of 
the  year,  was  three  millions.* 

*  Pashley  on  Pauperism  and  the  Poor  Laws,  (London,  1852,)  pp.  8-12. 


THE    SUCCESSION    TO    PROPERTY.  525 

The  proper  object  of  all  cultivation  is  to  increase  the  quan- 
tity of  the  marketable  produce  of  the  land,  and  this  is  what  the 
interest  of  the  community,  especially  in  such  a  country  as  Eng- 
land, requires ;  the  object  of  the  land-owner  who  does  not  till 
the  ground  himself,  but  lets  it  out  to  others,  is  to  reserve  as 
much  as  possible  of  this  produce  for  himself.  He  may  often 
obtain  a  greater  net  return  by  diminishing  the  gross  amount 
of  produce.  If  fifty  laborers  upon  his  estate,  for  instance,  will 
enable  him  to  send  1,000  bushels  of  grain  to  market,  the  price 
of  800  bushels  being  needed  to  pay  the  wages  of  these  laborers ; 
while  ten  laborers  will  produce  500  bushels  for  sale,  and  require 
only  160  bushels  for  wages ;  his  rent  in  the  former  case  will 
be  only  200,  while  in  the  latter  it  will  amount  to  340  bushels. 
It  is  for  his  interest,  then,  to  employ  the  smaller  number  of 
laborers,  and  thereby  to  produce  the  smaller  quantity  of  food, 
especially  since  the  inadequate  supply  in  the  market  will  then 
enhance  the  price  of  the  grain.  It  may  be,  that  500  will  sell 
for  as  much  as  could,  under  the  other  supposition,  be  obtained 
for  1,000  bushels.  But  it  is  certainly  not  for  the  interest  of  the 
public,  in  a  country  teeming  with  population  and  deficient  in 
the  supply  of  food,  that  he  should  adopt  this  course.  Here  is 
another  instance,  then,  of  the  fallacy  of  the  often  quoted 
maxim,  that  individual  and  national  interests  are  identical. 
Only  half  a  century  ago,  the  most  profitable  use  which  the 
farmers  of  Ohio  and  Western  Pennsylvania ,  could  make  of 
their  grain  was  to  distil  it  into  whiskey ;  for  in  this  highly  con- 
centrated form  alone  would  it  bear  the  expense  of  transporta- 
tion to  the  eastward.  The  interests  of  the  individual  here 
prompted  him  to  deprive  the  grain  of  its  nutritious  properties 
and  convert  it  into  a  poison  ;  the  interests  of  the  public  required 
a  very  different  proceeding. 

That  a  larger  gross  product  of  food  may  be  obtained  from 
the  land  when  it  is  divided  into  small  properties  than  when  it 
is  held  in  large  farms,  is  a  fact  which  no  English  traveller  on 
the  Continent  can  think  of  disputing.  "  In  Flanders,"  says 
Mr.  Laing,  « the  face  of  the  country  resembles  a  carpet,  little 
patches  of  gound  being  covered  with  a  great  variety  of  crops 
of  different  shades  and  hues,  not  separated  from  each  other  by 
enclosures,  and  all  blooming  like  a  garden  from  the  care  and 
skill  of  the  cultivator.  Not  a  bit  of  ground  is  allowed  to  run 


526  THE  SUCCESSION  TO  PROPERTY. 

to  waste,  every  nook  and  corner,  every  patch  in  the  angle  of  a 
fence,  being  searched  by  the  spade  and  hoe,  and  weeded  by 
hand."  The  wonders  of  English  farming  are  accomplished  on 
a  large  scale,  with  high  finish  indeed,  but  with  much  neces- 
sary neglect  or  slighting  of  the  nooks  and  corners,  which  can- 
not be  tilled  by  machinery,  but  will  yield  returns  only  to  man- 
ual labor.  Spade-husbandry,  of  course,  is  less  profitable,  and 
even  less  productive,  than  husbandry  by  the  plough,  wherever 
land  is  cheap  and  labor  is  dear.  But  where  only  the  nobility 
and  gentry  own  the  land,  while  a  large  portion  of  the  people 
are  constantly  in  want  of  employment  and  food,  precisely  the 
reverse  holds ;  cultivation  by  the  spade  is  then  true  economy, 
and  husbandry  on  a  large  scale  is  criminal  wastefulness  of  the 
bounties  of  Providence.  The  utmost  amount  which  land  13 
capable  of  producing  can  be  estimated  only  on  the  small 
patches  of  ground,  in  the  neighborhood  of  a  large  city,  which 
are  cultivated  by  the  market  gardeners.  Here,  every  clod  is 
broken,  every  shovelful  of  earth  is  raked  and  sifted,  every  peb- 
ble and  weed  is  carefully  removed  by  hand,  and  an  abundance 
of  hoarded  manure  being  applied,  while  every  accident  of  rain 
or  sunshine  is  economized  or  averted,  the  crops  are  immense 
out  of  all  proportion  with  the  little  space  that  is  cultivated. 
Usually  two  or  three  crops  of  different  kinds  of  vegetables  are 
raised  from  the  same  land  in  one  season.  If  the  cultivator  is 
also  the  owner  of  the  soil,  he  works  with  a  degree  of  diligence, 
earnestness,  and  care  which  can  never  be  obtained  from  a  hire- 
ling. The  land  is  then,  to  adopt  Mr.  Laing's  happy  illustra- 
tion, his  Savings'  Bank,  in  which  he  invests  the  labor  of  what 
would  otherwise  be  his  spare  minutes ;  for  though  such  labor 
may  not  perceptibly  increase  the  amount  of  the  next  crop,  it 
will  add  to  the  value  of  the  ground.  Even  the  little  household 
refuse,  which  would  otherwise  be  wasted,  though  really  valua- 
ble as  manure,  is  economized  and  applied  to  the  land.  The 
common  description  of  a  farm  which  is  worked  to  the  utmost 
is,  that  it  is  cultivated  "  like  a  garden"  ;  and  what  is  a  garden 
but  a  small  farm  ?  A  whole  country  divided  into  small  prop- 
erties is  a  constant  succession  of  such  gardens.  In  England, 
the  large  farmer,  who  often  pays  a  rent  of  a  thousand  pounds 
a  year,  is  in  fact  a  commercial  speculator  on  a  grand  scale. 
He  cannot  afford  to  pay  much  attention  to  minutiae ;  a  too 


THE    SUCCESSION    TO    PROPERTY.  527 

jealous  and  closely  calculated  economy,  by  leading  him  to  fritter 
away  on  details  the  care  and  thought  which  are  required  for 
the  general  management,  might  rain  him.  There  is  always 
considerable  waste  in  large  enterprises ;  it  will  not  do  for  the 
manager  of  them  to  cultivate  corners  and  patches.  The  large 
farmer  wields  a  heavy  capital  with  great  skill  and  science, 
economizes  human  labor  by  the  introduction  of  costly  and 
powerful  machines,  and  may  either  make  or  lose  a  fortune  in 
one  season.  His  operations  are  of  a  sweeping  character,  and 
his  returns  are  counted  in  the  gross.  He  often  makes  more 
money  by  raising  a  smaller  amount  to  the  acre.  To  turn  all 
his  land  into  a  kitchen  garden  would  require  a  whole  army  of 
laborers,  whose  wages  would  eat  up  all  his  profits.  The  la- 
borers would  be  fed,  but  he  would  sacrifice  his  capital.  The 
method  which  he  pursues  has  an  opposite  effect ;  he  makes  large 
profits,  while  the  laborers  are  driven  off  the  estate,  and  too  often 
become  dependent  on  public  charity.  Large  farms  economize 
human  labor,  it  is  true ;  but  it  depends  on  circumstances 
whether  this  is  a  benefit  to  the  nation.  Here  in  the  United 
States,  indeed,  it  would  be  a  real  saving,  equivalent  to  the  pro- 
duction of  more  wealth  ;  but  it  is  difficult  to  see  what  advan- 
tage it  could  bring  to  a  country  like  England,  where,  in  1850, 
there  were  over  300,000  able-bodied  male  paupers.* 

But  this  question  respecting  the  comparative  advantages  of 
large  and  small  farms  can  be  best  determined  by  observing  the 
results  of  the  two  systems  in  actual  operation,  side  by  side. 
The  following  is  taken  from  Mr.  Laing's  "  Notes  of  a  Trav- 
eller," First  Series. 

"  Why  should  the  physical  and  moral  condition  of  this  pop- 
ulation [that  of  Tuscany]  be  so  superior  to  that  of  the  Neapol- 
itans, or  of  the  neighboring  people  in  the  Papal  States  ?  The 
soil  and  climate  and  productions  are  the  same  in  all  these 
countries.  The  difference  must  be  accounted  for  by  the  hap- 
pier distribution  of  the  land  in  Tuscany.  In  1836,  Tuscany 
contained  1,436,785  inhabitants,  and  130,190  landed  estates. 
Deducting  7,901  estates  belonging  to  towns,  churches,  or  other 
corporate  bodies,  we  have  122,289  belonging  to  the  people,  — 
or,  in  other  words,  48  families  in  every  100  have  land  of  their 

*  Pashley  on  Pauperism  and  Poor  Laws,  p.  19. 


528  THE    SUCCESSION    TO    PROPERTY. 

own  to  live  from.  Can  the  striking  difference  in  the  physical 
and  moral  condition,  and  in  the  standard  of  living,  between 
the  people  of  Tuscany  and  those  of  the  Papal  States  be  as- 
cribed to  any  other  cause  ?  The  taxes  are  as  heavy  in  Tus- 
cany as  in  the  dominions  of  the  Pope ;  about  12s.  6d.  sterling 
per  head  of  the  population  in  the  one,  and  12s.  Wd.  in  the  other. 
But  in  the  whole  Maremma  of  Rome,  of  about  30  leagues  in 
length  by  10  or  12  in  breath,  M.  Chateauvieux  reckons  only  24 
factors,  or  tenants  of  the  large  estates  of  the  Roman  nobles. 
From  the  frontier  of  the  Neapolitan  to  that  of  the  Tuscan 
state,  the  whole  country  is  reckoned  to  be  divided  into  about 
600  landed  estates.  Compare  the  husbandry  of  Tuscany,  the 
perfect  system  of  drainage,  for  instance,  in  the  strath  of  Arno, 
by  drains  between  every  two  beds  of  land,  all  connected  with 
a  main  drain,  —  being  our  own  lately  introduced  furrow  tile- 
draining,  but  connected  here  with  the  irrigation  as  well  as  the 
draining  of  the  land ;  —  compare  the  clean  state  of  the  growing 
crops,  the  variety  and  succession  of  green  crops  for  foddering 
cattle  in  the  house  all  the  year  round,  the  attention  to  collect- 
ing manure,  the  garden-like  cultivation  of  the  whole  face  of 
the  country ;  —  compare  these  with  the  desert  waste  of  the  Ro- 
man Maremma,  or  with  the  Papal  country,  of  soil  and  pro- 
ductiveness as  good  as  that  of  the  vale  of  the  Arno,  the  country 
about  Foligno  and  Perugia ;  —  compare  the  well-clothed,  busy 
people,  the  smart  country-girls  at  work  about  their  cows'  food, 
or  their  silkworm  leaves,  with  the  ragged,  sallow,  indolent  pop- 
ulation lounging  about  their  doors  in  the  Papal  dominions, 
starving,  and  with  nothing  to  do  on  the  great  estates ;  nay, 
compare  the  agricultural  industry  and  operations  in  this  land 
of  small  farms  with  the  best  of  our  large  farm-districts,  with 
Tweedside,  or  East  Lothian,  —  and  snap  your  fingers  at  the 
wisdom  of  our  Sir  Johns,  and  all  the  host  of  our  book-makers 
on  agriculture,  who  bleat  after  each  other  that  solemn  saw  of 
the  thriving-tenantry-times  of  the  war,  —  that  small  farms  are 
incompatible  with  a  high  and  perfect  state  of  cultivation.  Scot- 
land,  or  England,  can  produce  no  one  tract  of  land  to  be  com- 
pared to  this  strath  of  the  Arno,  not  to  say  for  productiveness, 
because  that  depends  upon  soil  and  climate,  which  we  have  not 
of  similar  quality  to  compare,  but  for  industry  and  intelligence 
applied  to  husbandry,  for  perfect  drainage,  for  irrigation,  for 


THE    SUCCESSION    TO    PROPERTY.  529 

garden-like  culture,  for  clean  state  of  crops,  for  absence  of  all 
waste  of  land,  labor,  or  manure,  for  good  cultivation,  in  short, 
and  the  good  condition  of  the  laboring  cultivator.  These  are 
points  which  admit  of  being  compared  between  one  farm  and 
another,  in  the  most  distinct  soils  and  climates.  Our  system 
of  large  farms  will  gain  nothing  in  such  a  comparison  with  the 
husbandry  of  Tuscany,  Flanders,  or  Switzerland,  under  a  sys- 
tem of  small  farms." 

In  the  isle  of  Guernsey,  where  the  agricultural  population  is 
twice  as  dense  as  in  England,  the  average  wheat  crop  is  at 
least  32  bushels  to  an  acre ;  while  the  average  English  crop  — 
with  all  the  advantages  arising  from  the  application  of  immense 
capital,  scientific  husbandry,  and  agricultural  machines,  on 
which  the  advocates  of  large  farms  lay  so  much  stress  —  is  but 
21  bushels.  An  English  cultivator,  with  his  family,  it  is  esti- 
mated, consumes  one  fifth  of  the  product  which  he  raises ; 
then,  if  there  were  three  cultivators  where  there  is  now  but 
one,  and  if  their  united  exertions  should  make  the  crop  only 
two  fifths  greater  than  it  was  before,  there  would  still  be  as 
great  a  surplus  to  send  to  market,  though  the  number  of  fam- 
ilies supported  upon  the  land  would  be  three  times  as  great. 
In  other  words,  as  one  cultivator  raises  100  bushels,  of  which 
he  is  able  to  sell  80,  so,  if  three  cultivators  can  produce  140 
bushels  from  the  same  land,  they  can  still  send  80  to  market, 
and  feed  themselves  and  their  families  with  the  remainder. 
This  is  the  case  in  Guernsey,  where  the  average  crop  exceeds 
the  average  English  crop  by  more  than  two  fifths. 

Large  estates  still  more  than  large  farms  diminish  the  aggre- 
gate product  of  the  country,  because  the  owners  of  them  devote 
so  much  land  to  purposes  of  mere  ornament,  ostentation,  and 
luxury.  When  the  territory  is  divided  among  small  proprie- 
tors, as  in  France,  Prussia,  and  the  Netherlands,  almost  every 
acre  of  it  is  employed  productively ;  it  is  all  given  to  tillage, 
pasturage,  gardening,  or  the  growth  of  fuel  and  timber.  But 
in  Great  Britain,  large  portions  are  reserved  for  parks,  lawns, 
the  chase,  and  preserving  game.  If  land  were  abundant  and 
cheap,  indeed,  there  would  be  no  reason  to  regret  that  many 
acres  should  be  appropriated  to  such  uses.  But  when  com- 
plaints are  made  that  the  country  is  over-peopled,  that  popula- 
tion tends  to  outrun  the  means  of  subsistence,  and  that  its 
45 


530  THE    SUCCESSION    TO    PROPERTY. 

increase  drives  down  agriculture  successively  to  poorer  and 
poorer  soils,  it  is  reasonable  to  inquire  whether  the  gifts  of 
Providence  are  improved  to  the  utmost,  or  whether  the  scarcity 
of  food  be  not  owing  to  the  luxury  and  wastefulness  of  the 
rich.  Among  other  results  of  that  systematic  compulsory  de- 
population of  the  Highlands  of  Scotland  which  has  been  repeat- 
edly mentioned,  M.  de  Lavergne  alludes  to  the  "  skilful  turning 
to  account  of  the  wilderness,  through  the  extraordinary  profit 
derived  from  its  game.  Ptarmigan,  blackcock,  all  kinds  of 
water-fowl,  and  especially  grouse,  breed  upon  these  moors  in 
great  plenty ;  fallow  and  red  deer  have  also  been  artificially 
propagated  upon  them.  Fashion  has  given  great  value  to  these 
sports.  A  hill  stocked  with  game  lets  for  £  50  for  the  season. 
Shooting-lodges,  built  in  the  most  retired  spots,  are  let,  includ- 
ing the  right  of  shooting  over  the  adjacent  hills,  at  £  500. 
What  is  called  a  forest  —  that  is  to  say,  several  thousands  of 
acres,  not  exactly  planted  with  trees,  but  reserved  for  deer  to 
the  exclusion  of  all  kinds  of  cattle  —  brings  an  extravagant 
rent.  The  large  Scotch  proprietors,  following  the  example  of 
William  the  Conqueror,  have  laid  out  many  of  these  forests 
upon  their  estates.  Gentlemen  go  there  at  great  expense,  to 
enjoy  the  sport  of  shooting  the  fleet  monarchs  of  these  wilds  in 
their  precipitous  retreats." 

The  parallel  here  suggested  is  a  very  significant  one.  Wil- 
liam, in  the  stern  exercise  of  his  rights  as  a  conqueror,  resolved 
to  make  a  new  forest  near  Winchester,  the  usual  place  of  his 
residence,  that  he  might  enjoy  the  pleasures  of  the  chase  ;  and 
for  this  purpose,  says  Hume,  "  he  laid  waste  the  country  in 
Hampshire  for  an  extent  of  thirty  miles,  expelled  the  inhabit- 
ants from  their  houses,  seized  their  property,  even  demolished 
churches  and  convents,  and  made  the  sufferers  no  compensation 
for  the  injury."  What  he  did  under  the  rights  of  war,  these 
Scottish  lords  have  done  under  color  of  the  rights  of  property. 
They  have  banished  the  inhabitants  of  several  counties  in  the 
North  of  Scotland,  from  the  homes  which,  according  to  the 
Celtic  law  and  usage,  belonged  to  them  as  much  as  to  their 
chieftains,  and  have  turned  one  portion  of  the  district  into  a 
sheep-walk,  and  another  into  a  wilderness,  that  they  might 
enjoy  the  pleasures  of  the  chase.  The  region  thus  depopulated 
is  fifty  times  as  large  as  that  which  the  Norman  converted  into 
the  New  Forest. 


THE    SUCCESSION    TO    PROPERTY.  531 

M.  de  Lavergne  apologizes,  though  rather  faintly,  for  this 
proceeding.  "People  are  beginning  to  murmur,"  he  says, 
"  against  these  last  vestiges  of  ancient  feudalism,  contending 
that  the  deer  are  too  few  in  number  profitably  to  occupy  the 
vast  tracts  set  apart  for  them,  and  that  it  would  be  better  to 
use  them  for  feeding  sheep.  I  can  understand  such  an  argu- 
ment when  the  question  concerns  England,  where  certain 
wealthy  proprietors  still  persist  in  keeping  waste  for  their 
shootings  large  tracts  of  land  in  the  middle  of  populous  dis- 
tricts, that  might  otherwise  bear  crops ;  such,  for  example,  is 
Cannoch  Chase  in  Staffordshire,  which  contains  nearly  15,000 
acres  ;  but  in  the  Highlands  of  Scotland,  I  can  scarcely  believe 
that  the  loss  is  very  great.  A  few  thousands  of  sheep,  more 
or  less,  would  be  no  great  addition  to  the  national  food ;  and 
then,  again,  the  last  remains  of  savage  nature  in  Great  Britain 
would  be  gone.  To  rob  the  country  life  of  all  its  poetry,  is 
going  rather  too  far  even  in  the  interests  of  farming." 

If  the  question  were  only  between  deer  and  sheep,  as  the 
inhabitants  of  this  vast  district,  we  might  agree  with  M.  de 
Lavergne,  that  it  does  not  matter  much  which  way  it  is  de- 
cided, especially  if  we  are  to  take  his  account  of  the  condition 
of  Sutherlandshire,  whence  a  Highland  clan  has  been  driven  to 
make  room  for  flocks.  "  The  depopulated  lands,"  he  says, 
"  were  divided  into  twenty-nine  large  sheep  farms,  averaging 
twenty-five  thousand  acres  each.  The  hills  serve  for  summer 
pasturage,  and  the  glens  or  valleys  for  the  winter.  As  for  hu- 
man inhabitants,  there  are  none.  If  the  sound  of  the  bagpipe 
is  heard  among  the  rocks,  it  is  no  longer  the  gathering-call  of 
warlike  mountaineers,  but  the  more  peaceful  amusement  of  a 
shepherd,  who,  in  place  of  war  and  pillage,  devotes  his  time  to 
the  care  of  sheep,  and  receives  wages  from  a  neighboring 
farmer.  This  is  all  that  remains  of  an  extinct  race.  One  of 
these  shepherds  can  look  after  five  hundred  sheep.  There  may 
be  four  or  five  hundred  such  upon  these  eight  hundred  thou- 
sand acres."  In  order  to  effect  this  improvement,  "  three  thou- 
sand families  were  forced  to  quit  the  country  of  their  fathers, 
and  were  transplanted  into  the  new  villages  upon  the  coast. 
When  resistance  was  shown,  the  agents  of  the  Marchioness 
demolished  their  miserable  habitations,  and  in  some  instances, 
in  order  to  effect  this  more  speedily,  the  huts  were  set  on  fire." 


532  THE  SUCCESSION  TO  PROPERTY. 

These  striking  instances  of  the  arbitrary  depopulation  '  of 
large  districts  are  not  adduced  to  throw  odium  upon  the  au- 
thors of  them.  The  fault  is  not  imputable  so  much  to  the 
great  proprietors  in  England,  Scotland,  and  Ireland,  who  have 
effected  these  wholesale  "  clearances  "  of  their  estates,  as  to  the 
system,  —  the  policy  of  the  law,  the  course  of  legislation,  and 
the  state  of  public  opinion,  —  which  has  caused  such  an  accu- 
mulation of  real  property  in  the  hands  of  a  few,  and  has  au- 
thorized such  a  use  of  it  These  are  the  necessary  results  of  a 
system  which  is  upheld  by  English  theologians  and  political 
economists,  as  well  as  by  English  statesmen,  for  the  avowed 
purpose  of  sustaining  a  splendid  aristocracy.  "  It  is  not  true," 
declares  Dr.  Chalmers  with  his  wonted  earnestness,  "  that,  in 
virtue  of  elegance,  and  luxury,  and  leisure  being  the  inheritance 
of  a  few,  there  is  not  a  blessing-  in  the  present  system  of  things  to 
the  whole  mass  of  society.  Under  the  opposite  system,  there 
would  be  nearly  one  unbroken  level,  the  whole  of  which  be- 
hoved, in  time,  to  be  as  sunk  and  degraded  as  is  the  state  of 
our  present  laborers.  Now,  it  is  a  level  rising  into  frequent 
eminences  of  greater  or  less  height  [a  very  remarkable  level, 
indeed],  and  of  radiance  more  or  less  conspicuous.  And  what 
we  affirm  is,  that,  from  this  higher  galaxy  of  rank  and  fortune, 
there  are  the  droppings,  as  it  were,  of  a  bland  and  benignant  in- 
fluence on  the  general  platform  of  humanity ." 

May  Heaven  shield  every  other  nation  from  the  droppings 
of  such  "  a  bland  and  benignant  influence  "  as  have  rendered 
the  Highlands  of  Scotland,  and  the  dreariest  hills  and  bogs  in 
the  sister  isle,  more  wild  and  desolate  even  than  Nature's  hand 
had  left  them,  because  the  blackened  walls  of  many  a  roofless 
hut  now  tell  us  that  man  once  lived  there,  but  that  he  has  been 
dispossessed  and  exiled  in  order  to  make  room  for  the  ptarmi- 
gan, the  red  deer,  and  the  fox,  and  thus  to  afford  new  hunting- 
grounds  for  a  magnificent  aristocracy  ! 

The  system  has  been  carried  out,  not  merely  by  such  princely 
proprietors  as  the  Duchess  of  Sutherland  and  the  Marquis  of 
Breadalbane,  and  the  great  absentee  landlords  of  Ireland,  but 
by  nearly  all  the  owners  of  real  estate  in  the  United  Kingdom. 
There  has  been  a  systematic  depopulation  of  all  the  rural  dis- 
tricts, as  the  necessary  consequence  of  the  national  policy  of 
favoring  the  aggregation  of  landed  property  for  political  pur- 


THE    SUCCESSION    TO    PROPERTY.  533 

poses,  or  to  keep  up  aristocratic  institutions.  Large  estates 
are  naturally  divided  into  large  farms,  both  because  it  is  easier 
and  safer  for  the  owners  thus  to  manage  them  and  collect  their 
rents,  and  because  the  aggregate  of  rent  thus  obtained  is  more 
considerable,  though  this  increase  of  net  income  is  procured  by 
diminishing  the  gross  product. 

The  fact  that  most  Irish  estates,  till  within  a  few  years,  were 
parcelled  out  into  a  great  number  of  very  small  holdings,  is 
only  an  apparent  contradiction  of  this  statement.  Irish  land- 
lords, as  well  as  English  and  Scotch,  did  in  fact  lease  their 
property  in  a  few  immense  farms ;  but  the  practice  of  underlet- 
ting being  sanctioned  by  law  and  custom  in  Ireland,  while  it 
is  entirely  prohibited  in  the  sister  isle,  the  lease-holders  found 
it  more  convenient,  as  well  as  more  profitable,  to  let  out  the 
land  again  in  smaller  parcels,  and  thus  to  become  "  middle- 
men" instead  of  farmers.  They  thus  retained  a  higher  social 
position,  and  were  able  to  make  greater  profits  by  rack-renting 
the  inferior  tenantry,  than  by  carrying  out  the  most  scientific 
processes  of  husbandry.  The  absenteeism  of  the  landlords, 
and  the  practice  of  granting  perpetual  leases,  favored  this  re- 
sult. The  middlemen  under  these  circumstances  differed  but 
little  from  actual  proprietors,  though  they  held  the  estate  under 
a  heavy  encumbrance,  and  were  therefore  more  extortionate  in 
demanding  heavy  rents,  and  rigidly  exacting  all  their  dues. 
Few  of  the  kindly  relations  existed  between  them  and  their 
tenantry  which  generally  sprang  up  in  England  between  a  res- 
ident landlord  and  a  tenant  family,  which,  in  many  instances, 
had  occupied  the  same  farm  for  several  successive  generations. 
The  land,  and  all  that  was  connected  with  it,  were  not  endeared 
to  the  lease-holder  by  the  indefinable  charm  which  springs  from 
absolute  ownership ;  he  was,  after  all,  only  a  great  speculator, 
and,  in  one  sense,  a  hireling.  Hence  one  of  the  peculiar  ag- 
gravating causes  of  the  wretched  condition  of  Irish  property, 
and  the  destitution  of  Irish  tenants. 

Abundant  evidence  has  now  been  adduced,  that  the  larger 
net  income  accruing  to  the  landlords  from  leasing  their  estates 
in  large  rather  than  in  small  farms,  arises  from  diminishing  the 
quantity,  and  enhancing  the  price,  of  the  products  of  the  soil, 
instead  of  increasing  its  productiveness  by  improved  processes 
of  husbandry.  Here,  surely,  the  gains  of  the  individual  are  a 
45* 


534  THE    SUCCESSION    TO    PROPERTY. 

loss  to  the  nation ;  such  gains  are  the  result  of  the  acquisition 
of  wealth,  not  of  its  creation,  for  they  are  extorted  from  the 
consumers  by  raising  the  price  of  food.  The  Scotch  Highland 
lords,  who  also  have  immense  estates  in  England,  would  not 
so  readily  convert  their  property  at  the  North  into  sheep-walks 
and  game-preserves,  if  they  did  not  find  that,  by  raising  more 
grain,  they  lowered  its  price  so  much  that  their  aggregate  re- 
ceipts would  be  diminished.  In  truth,  it  may  be  demonstrated 
that  it  is  for  the  interest  of  English  landlords  always  to  keep 
the  home  supply  a  little  short  of  the  demand,  so  that  some  im- 
portation of  food  shall  be  necessary.  Suppose,  for  instance, 
that  the  consumption  exceeds  one  million  of  quarters  by  only 
40,000  bushels,  and  that,  if  this  additional  40,000  bushels  are 
raised  at  home,  the  price  averages  fifty  shillings  a  quarter. 
But  if  only  one  million  of  quarters  should  be  grown  in  Eng- 
land, then,  before  the  40,000  bushels  can  be  imported,  the  price 
of  the  whole  must  rise  enough  to  defray  the  cost  of  importa- 
tion, which  amounts,  on  an  average,  to  at  least  twelve  shil- 
lings a  quarter.  By  keeping  the  supply  thus  far  short,  there- 
fore, they  will  be  able  to  sell  one  million  of  quarters  at  sixty- 
two  shillings,  which  will  produce  £  3,100,000 ;  whereas,  if  the 
extra  quantity  be  produced  at  home,  they  will  have  1,005,000 
quarters  to  dispose  of  at  only  fifty  shillings  a  quarter,  which 
will  amount  to  but  £  2,512,500 ;  so  that  the  farmers  will  lose 
<£  587,500  by  their  imprudent  increase  of  production. 

This  is  not  all.  Large  estates  and  large  farms  impoverish 
the  country,  not  only  by  enhancing  the  cost  of  food,  but  by 
lowering  the  rate  of  wages,  and  increasing  the  number  of  those 
who  are  solely  dependent  upon  wages  for  their  support.  I 
have  already  shown,  in  the  chapter  on  this  subject  (pp.  199  - 
201),  that  wages  are  higher  in  the  United  States  than  any- 
where else,  chiefly  because  almost  every  native  American  has 
the  option  of  beginning  life  on  his  own  account,  as  a  small 
tradesman,  an  independent  mechanic,  or  a  small  landholder, 
and  that  he  can  be  tempted  to  forego  the  superior  indepen- 
dence and  respectability  of  such  an  occupation,  and  the  greater 
chance  that  it  offers  of  making  a  fortune,  only  by  the  offer  of 
comparatively  high  wages.  Any  considerable  reduction  of  the 
rate  of  wages  is  sure  to  be  followed  by  a  great  diminution  in 
the  number  of  those  who  are  willing  to  work  for  hire.  Mr. 


THE    SUCCESSION    TO    PROPERTY.  535 

Laing  happily  illustrates  the  same  principle,  while  accounting 
for  the  higher  real  wages  that  are  paid  in  many  parts  of  the 
Continent  than  in  England.  "  It  is  the  possession  of  prop- 
erty," he  says,  "  that  regulates  the  standard  of  living  in  a  coun- 
try, and  this  standard  regulates  the  wages  of  labor.  People 
who  have  at  home  some  kind  of  property  to  apply  their  labor 
to,  will  not  sell  their  labor  for  wages  that  do  not  afford  them  a 
better  diet  than  potatoes  and  maize ;  although,  in  saving  for 
themselves,  they  may  live  very  much  on  potatoes  and  maize. 
It  is  want  of  the  necessity  or  inclination  to  take  work,  that 
makes  labor  scarce,  and,  considering  the  price  of  provisions, 
dear,  in  many  parts  of  the  Continent  where  property  in  land  is 
widely  diffused  among  the  people." 

Now  the  whole  civilized  world  affords  no  parallel  to  the 
condition  of  the  people  of  Great  Britain  in  these  respects. 
The  concentration  of  landed  property,  as  we  have  seen,  is  such, 
that  only  one  person  out  of  every  112  has  any  proprietary  in- 
terest in  the  soil ;  and  the  large-farm  system,  with  the  conse- 
quent reduction  in  numbers  of  the  agricultural  class,  has  been 
carried  so  far,  that  only  one  in  five  has  anything  to  do  with  the 
cultivation  of  it.  Thus  the  whole  ground  of  independence  of 
the  laboring  classes  has  been  taken  away ;  they  have  been 
obliged  to  offer  themselves  as  laborers  for  hire,  or  to  starve. 
While  two  thirds  of  the  whole  French  population  are  owners 
of  land,  full  two  thirds  of  the  whole  British  people  are  hire- 
lings, solely  dependent  upon  wages  for  a  livelihood.*  The 

*  Mr.  Morrison,  one  of  the  latest  English  writers  on  the  "Relations  between  La- 
bor and  Capital,"  and  a  very  candid  and  judicious  reasoner,  understates  the  contrast 
when  he  says,  that,  in  France,  "the  class  of  manual  laborers  living  on  wages  re- 
ceived from  capitalists  is  seen  to  be  only  a  minority,  and  not  even  a  large  minority, 
of  the  nation  "  ;  they  certainly  do  not  form  more  than  one  sixth  of  the  whole.  "  But 
in  England  and  Scotland,"  he  says,  "the  classes  living  by  wages  form  the  majority 
of  the  population,"  and,  according  to  the  best  estimate  that  can  be  formed  from  the 
last  census,  a  very  considerable  majority. 

Mr.  Morrison  states  one  of  the  consequences  of  this  contrast  very  fairly,  when  he 
says,  in  reference  to  the  mad  proceedings  of  the  Provisional  Government  in  France, 
in"l848,  which  had  raised  an  alarm  about  the  safety  of  property,  "the  great  mass  of 
the  nation,  the  peasant  proprietors  and  others,  who  were  neither  payers  nor  receivers 
of  wages,  and  had  a  great  and  direct  interest  in  the  preservation  of  the  right  of  prop- 
erty, intervened  before  the  mischief  had  gone  very  far."  But  in  England,  he  adds, 
"not  only  is  the  division  of  the  nation  into  a  minority  of  possessors  of  property,  and 
a  majority  of  workingmen  having  little  or  no  property,  more  complete  than  in 
France  or  most  Continental  countries,  but  both  the  wealth  and  the  labor  are  col- 


536  THE    SUCCESSION    TO    PROPERTY. 

field  for  the  employment  of  labor  is  not  unbounded ;  its  limits 
are  as  fixed  as  those  of  the  field  for  the  use  of  capital.  Ac- 
cording to  the  natural  distribution  of  industry,  agriculture 
ought  to  be  the  occupation  or  the  chief  resource  of  a  majority 
of  the  people.  The  production  of  food  is  the  first  and  greatest 
want  of  the  human  race ;  as  it  must  be  carried  on  over  the 
whole  face  of  the  country,  it  does  not  admit  of  the  division 
and  the  economy  of  labor  so  much  as  the  other  two  depart- 
ments of  industry.  Every  square  mile,  every  acre,  must  be 
cultivated  by  itself,  wholly  irrespective  of  the  work  which  is 
done  upon  the  neighboring  mile  or  acre.  Improvements  in  the 
processes  of  husbandry  may  enable  us  to  raise  more  products 
from  the  land,  but  cannot  materially  lessen  the  number  of  tillers 
of  the  ground,  or  the  proportion  which  they  bear  to  the  other 
classes  of  society,  without  diminishing  at  the  same  time  the 
gross  produce.  The  facts  here  are  in  accordance  with  the  the- 
ory. In  the  whole  civilized  world,  except  Great  Britain,  there 
is  not  probably  one  country  which  employs  less  than  half  of  its 
population  in  cultivating  the  soil ;  the  usual  proportion  is  from 
two  thirds  to  three  fourths.  The  improvements  in  manufac- 
ture and  commerce  have  been  proportionably  so  much  greater 
than  in  agriculture,  that  one  third  of  the  people  can  supply  the 
aggregate  want  of  the  nation  in  the  two  former  respects,  more 
easily  than  two  thirds  can  supply  its  want  of  food. 

In  the  extrusion  of  four  fifths  of  the  English  people, from  the 
pursuits  of  agriculture,  and  from  any  connection  with  the  soil, 
we  find  the  cause  of  so  large  a  class  of  the  population  being 
entirely  dependent  upon  wages,  of  the  consequent  depression 
of  wages,  the  extraordinary  increase  of  pauperism,  the  unnatu- 
ral development  of  manufacturing  enterprise,  and  the  other 
peculiar  circumstances  of  the  present  social  condition  of  Great 
Britain.  In  this  single  fact,  we  find  a  sufficient  explanation  of 
those  social  phenomena  which  first  suggested  the  theories  of 
Malthus  and  Ricardo  respecting  population,  wages,  and  rent. 


lected  into  great  masses  in  a  greater  degree  than  elsewhere.  Hence,  if  the  improve- 
ment of  the  relations  between  capital  and  labor  by  the  authority  of  government 
should  ever  become  a  practical  political  question,  it  will  assume  dimensions  un- 
known in  most  other  countries.  It  will  be  a  direct  appeal  to  the  interests  and  pas- 
sions of  the  majority  of  the  whole  nation  against  a  minority ;  and  there  will  be  no 
third  party  capable  of  holding  the  balance  between  them." 


THE    SUCCESSION    TO    PROPERTY.  537 

Deprived  of  all  other  means  of  support,  a  majority  of  the  pop- 
ulation are  driven  to  compete  with  each  other  for  employment, 
by  offering  to  work  for  the  smallest  amount  of  wages  that  will 
furnish  the  necessaries  of  life.  Hopeless  of  any  improvement 
in  their  condition,  they  become  reckless  as  to  the  future,  and 
too  often  burden  themselves  with  families  when  their  gains  are 
hardly  sufficient  to  preserve  their  individual  existence.  Manu- 
factures were  the  only  branch  of  industry  in  which  any  great 
numbers  of  them  could  find  employment ;  and  thus  labor  was 
rendered  so  cheap,  that  manufacturing  enterprise  has  been  un- 
duly stimulated,  and  the  persons  concerned  in  it  have  offered 
no  opposition  to  the  proceedings  of  the  landholders,  whereby 
the  towns  have  been  glutted  with  the  surplus  of  the  agricultu- 
ral population.  Great  Britain  is  in  the  anomalous  position  of 
not  raising  food  enough  for  her  own  consumption,  and  still 
glutting  the  market  of  the  world  with  the  products  of  her  man- 
ufacturing industry.  No  nation  can  compete  with  her  in  this 
respect,  except  by  raising  a  barrier  against  the  influx  of  her 
cheap  goods,  or  by  allowing  its  own  laboring  classes  to  fall 
into  a  condition  as  dependent  and  miserable  as  that  of  English 
operatives. 

So  long  as  the  laws  regulating  the  succession  of  property 
remain  unchanged  here  in  America,  we  have  a  guaranty  of  the 
permanency  of  our  republican  institutions,  and  a  safeguard 
against  the  worst  social  evils  which  affect  the  Old  World. 
Whatever  may  be  the  rage  of  parties  or  the  temporary  vio- 
lence of  faction,  there  is  no  danger  of  revolutionary  violence,  so 
long  as  the  bulk  of  the  people  are  either  satisfied  with  their 
present  lot,  or  believe  ease  and  competency  to  be  within  their 
reach,  if  they  are  only  willing  to  use  industry  and  self-denial 
enough  to  gain  them.  The  blessings  of  our  peculiar  institu- 
tions, I  suspect,  are  rather  social  than  political.  We  ought  to 
prize  them,  not  so  much  because  they  guard  us  against  oppres- 
sion and  anarchy,  which  may  be  regarded  as  obsolete  evils  for 
an  Anglo-Saxon  race,  as  because  they  foster  no  inequalities  of 
social  condition,  but  open  the  avenues  to  fame  and  fortune 
alike  to  all.  The  great  merit  of  oar  government  is,  that  it  lets 
things  alone;  that  it  allows  matters  to  take  their  natural 
course ;  that  it  permits  property  to  change  hands  as  often  as 
caprice  or  speculation  dictates ;  that  it  offers  no  obstacle  to 


538  THE    SUCCESSION    TO    PROPERTY. 

enterprise  in  the  accumulation  of  a  fortune,  however  great,  and 
no  hinderance  to  the  dissipation  of  it  during  the  lifetime  of  the 
owner,  or  to  the  equal  partition  of  it  after  his  death  among  his 
natural  heirs.  Under  this  system  of  non-interference,  it  is  true, 
as  the  English  economists  urge,  that  we  cannot  have  perma- 
nent family  estates  or  an  hereditary  aristocracy ;  and  our  conso- 
lation is,  that  we  are  able  to  get  along  very  well  without  them. 

The  English  economists  who  favor  the  aggregation  of  landed 
estates,  ought  to  have  more  regard  to  their  own  favorite  maxim, 
laissez  faire.  In  respect  to  the  distribution  of  property,  more 
than  in  any  other  case,  is  there  good  reason  for  not  interfering 
with  the  natural  constitution  of  society,  and  the  wise  arrange- 
ments of  Providence.  As  already  stated,  it  is  not  the  mere 
inequality  of  fortunes,  but  the  fixedness  of  them  in  a  few  fami- 
lies, which  is  to  be  dreaded.  There  are  natural  causes  enough 
which  favor  the  former,  and  obstruct  the  latter,  if  their  opera- 
tion be  not  impeded  by  laws  of  man's  device.  Thus,  it  is  a 
natural  law,  that  wealth  favors  the  growth  of  wealth,  and  pov- 
erty tends  to  generate  poverty.  In  explaining  the  causes  of 
the  diminished  rate  of  profit  as  a  nation  advances  in  opulence, 
it  was  mentioned,  that  large  capitals  tend  constantly,  more 
and  more,  to  crowd  small  ones  out  of  employment,  because 
the  owners  of  the  former  can  afford  to  work  for  smaller  returns, 
and  can  sustain  greater  reverses.  This  is  well  explained  by 
M.  Passy.  "  Other  things  being  equal,"  he  says,  "  the  profits 
of  each  capitalist  decrease  in  the  same  ratio  in  which  the  na- 
tional capital  increases.  The  little  capitalist  thus  finds  himself 
obliged,  on  account  of  the  diminution  of  his  income,  to  break 
in  upon  his  capital ;  while  the  great  capitalist,  finding  in  the 
mass  of  his  profits  an  income  still  superior  to  his  wants,  con- 
stantly adds  to  his  riches  by  new  savings.  Besides,  who  does 
not  know,  that,  being  able  to  use  the  most  costly  machines,  to 
carry  to  the  utmost  the  division  of  labor,  and  to  reduce  the 
general  expenses  to  the  lowest  point,  the  great  capitalist  can 
produce  more  cheaply  than  the  smaller  ones,  and  thus  make 
himself  absolute  master  of  the  market  ?  " 

Other  natural  causes  tending  to  the  same  result  are,  the  dif- 
ferences existing  among  men  in  point  of  natural  endowments ; 
the  occurrence  of  unforeseen  events ;  and  the  law  of  population 
itself,  which  makes  the  destitute  classes  multiply  with  great 


THE    SUCCESSION    TO    PROPERTY.  539 

rapidity,  because  misery  renders  them  reckless,  while  the  rich 
tend  to  decrease  in  number,  and,  from  the  lack  of  male  heirs, 
estates  come  to  be  united  by  marriage  and  collateral  inherit- 
ance. Thus  there  will  always  be  inequality  enough  in  the 
distribution  of  property  to  allow  those  enterprises  to  be  carried 
out  which  require  great  accumulations  of  wealth,  and  to  oper- 
ate as  a  spur  to  the  industry  and  frugality  of  the  community, 
by  manifesting  the  comforts  and  luxuries,  the  higher  social  po- 
sition, which  riches  alone  can  give. 

On  the  other  hand,  in  the  order  of  Providence,  there  is  a 
natural  check  or  limitation  to  the  excessive  accumulation  of 
property  in  the  hands  of  a  few,  and  to  the  consequent  debase- 
ment and  misery  of  the  multitude  ;  and  this  natural  corrective, 
when  not  interfered  with  or  rendered  powerless  by  unwise  laws 
or  a  bad  government,  tends  so  rapidly  and  effectually  towards 
an  equalization  of  wealth  in  the  community,  that  no  consider- 
able number  of  persons  can  possibly  be  brought  to  extreme 
destitution,  —  certainly,  cannot  be  exposed  to  the  danger  of 
perishing  with  hunger,  —  except  by  their  own  obvious  fault. 
Such  a  check,  we  maintain,  exists  in  the  very  circumstance  or 
cause  to  which  the  English  school  of  political  economists  are 
fond  of  attributing  the  whole  evil,  —  the  natural  multiplication 
of  the  human  species.  Property  in  the  hands  of  an  individual 
unquestionably  tends  to  accumulate  ;  one  who  has  both  money 
and  industry  can  make  greater  gains,  other  things  being  equal, 
than  his  competitor  who  is  obliged  to  depend  on  industry  alone. 
But  from  the  shortness  of  human  life,  an  individual  can  hold 
this  property  only  for  a  brief  period  of  years ;  when  he  dies,  it 
descends  to  his  offspring ;  and  by  the  law  of  nature,  as  they 
are  all  equally  near  to  him,  it  is  equally  divided  among  them. 
When  this  law  is  not  abrogated  by  human  legislation,  it  causes 
so  frequent  a  distribution  of  estates  as  effectually  to  overcome 
the  tendency  of  capital  to  accumulate,  or  to  continue  in  a 
single  line  of  heirs.  No  sooner  is  wealth  heaped  up  than  it  is 
parcelled  out  again,  and  a  constant  movement  or  circulation 
is  thus  maintained,  which  sends  the  lifeblood  of  capital  into 
every  part  of  the  body  politic.  This  distribution  tends  as  pow- 
erfully to  political  as  to  social  equality,  for  the  former,  indeed, 
depends  upon  and  is  regulated  by  the  latter ;  hence  it  is  the 
safeguard  of  republics,  and  the  bane  of  aristocratic  governments. 


540  THE    SUCCESSION    TO    PROPERTY. 

The  faster  the  population  increases,  the  more  rapidly  does  this 
great  corrective  of  the  accumulation  of  property  operate ;  the 
greater  the  number  of  heirs,  the  more  minute  is  the  division  of 
the  parent's  wealth. 

I  have  already  remarked  at  length  (Chap.  X.)  on  the  ten- 
dency of  frequent  mutations  of  fortune,  of  numerous  and  sud- 
den changes  from  poverty  to  opulence  and  the  reverse,  to  keep 
down  popular  discontent,  to  increase  the  security  of  property, 
and  to  incite  the  activity  and  enterprise  of  the  community. 
These  results  are  displayed  here  in  America  to  an  extent  which 
excites  the  never-ending  astonishment  of  foreigners.  The 
English  system  has  precisely  the  opposite  effect  So  far  as  it 
extends,  it  chills  exertion  by  hemming  it  round  with  barriers 
which  no  effort  can  overleap.  In  the  case  of  real  property, 
these  impediments  are  such  that  partition  or  alienation  in  most 
cases  is  impossible,  and  the  land  is  permanently  placed  extra 
commercium.  The  dignity  and  other  advantages  of  a  landhold- 
ers position  may  be  inherited  by  the  accident  of  birth,  but  can- 
not often  be  bought.  Land  in  small  parcels  is  seldom  brought 
into  market,  as  the  stamp  duties  for  the  transfer  are  high  out  of 
all  proportion  with  those  which  are  charged  for  the  conveyance 
of  large  properties  ;  and  as  there  is  no  registration  of  deeds  and 
mortgages  in  England,  the  expense  of  investigating  the  title  is 
very  great,  and  just  as  heavy  for  a  small  estate  as  a  large  one. 
Personal  property  is  not  so  well  guarded ;  but  the  causes  which 
have  been  mentioned,  the  policy  of  the  law  and  the  general 
desire  to  secure  the  possession  of  wealth  to  one's  descendants, 
tend  powerfully  to  heap  it  together;  waste  is  possible,  but 
natural  causes,  aided  by  legal  provisions,  tend  strongly  towards 
accumulation.  Small  capitals  find  a  constantly  increasing 
difficulty  in  competing  with  larger  ones;  industry  alone,  un- 
aided by  inherited  wealth,  has  little  chance  in  the  strife.  The 
consequence  is,  that  the  mass  of  the  people,  the  laboring  classes 
generally,  sit  down,  not  contented,  but  sullen  and  reckless,  in 
their  poverty ;  the  great  aim  of  life  for  them  is  reduced  to  the 
attainment  of  a  mere  subsistence. 

Isolated  facts  give  only  a  vague  conception  of  the  great  ine- 
quality of  fortune,  the  frightful  extremes  of  opulence  and  mis- 
ery, which  deform  the  social  aspect  of  Great  Britain.  The 
knowledge  thus  gained  is  very  partial  and  indefinite ;  and  it 


THE    SUCCESSION    TO    PROPERTY.  541 

leads  to  no  certain  conclusions,  because,  in  every  country  on 
the  globe,  we  meet  with  similar  afflicting  instances  of  extreme 
indigence  and  almost  unbounded  wealth,  the  contrast  between 
them  being  heightened  apparently  by  their  close  juxtaposition. 
Everywhere  it  is  but  a  short  walk  from  the  palace  to  the  hovel ; 
at  the  gate  of  every  Dives  sits  a  Lazarus,  and  the  dogs  come 
and  lick  his  sores.  But  the  number  and  extent  of  these  fright- 
ful contrasts  are  vastly  greater  in  England  and  Ireland  than  in 
any  other  nation  upon  the  earth,  and  the  history  of  all  former 
ages  affords  no  parallel  to  them.  Its  people  are  the  manufac- 
turers and  bankers  of  the  civilized  world ;  their  accumulated 
capital,  finding  no  sufficient  employment  at  home,  is  carried 
abroad,  with  every  wind  that  blows,  to  the  remotest  lands  and 
the  farthest  isles  of  the  sea,  everywhere  setting  industry  in 
motion,  supplying  means  for  great  national  enterprises,  and 
creating  immense  yearly  returns  to  increase  the  surplus  of 
wealth  at  home.  But  the  destitution  and  misery  of  the  larger 
portion  of  the  people  increase  even  more  rapidly  than  the  riches 
of  the  prosperous  class.  Almshouses  and  jails  are  multiplied 
as  fast  as  the  palatial  abodes  of  the  nobility  and  gentry,  or  the 
immense  mills  and  workshops  of  the  rich  manufacturers.  No- 
blemen, whose  annual  incomes  exceed  half  a  million  of  dollars, 
complain  of  the  heavy  taxes  which  they  are  obliged  to  pay  for 
the  support  of  over  a  million  of  paupers.  Finally,  a  panic 
seems  to  fall  upon  the  whole  Irish  nation,  and  they  fly  from 
their  native  home,  which  is  noted  for  its  fertility  and  abound- 
ing in  wealth,  with  more  fearful  haste,  and  in  larger  numbers, 
than  if  it  were  scourged  with  a  pestilence,  or  wasted  with  the 
sword.  It  is  in  the  magnitude  of  these  numbers,  in  this  terrible 
preponderance  of  misery,  that  the  lover  of  his  race  sees  reason 
to  doubt,  whether  the  preservation  of  property,  as  it  is  now 
constituted  in  Great  Britain,  be  not  rather  a  curse  than  a 
blessing. 

The  principal  argument  in  favor  of  the  monstrous  inequality 
of  fortunes  to  which  the  policy  of  English  law  has  given  rise 
is,  that  it  is  absolutely  necessary  for  the  preservation  of  an 
hereditary  aristocracy.  This  will  be  satisfactory  to  all  who 
believe,  that  the  few  who  are  born  to  the  certain  possession 
of  vast  estates  are  more  likely  to  be  virtuous,  intelligent,  and 
capable  than  any  other  persons  in  the  community.  It  does  not 
46 


542  THE    SUCCESSION    TO    PROPERTY. 

agree  very  well,  however,  with  Dr.  Johnson's  apology  for  the 
custom  of  primogeniture,  when  he  said  that  it  had  the  merit 
of  making  "  only  one  fool  in  a  family."  Nor  is  it  quite  con- 
sistent with  what  Mr.  McCulloch  himself  remarks  in  another 
connection,  that,  "  if  you  would  develop  all  the  native  resour- 
ces of  a  man's  mind,  you  must  make  him  aware  of  his  inferi- 
ority in  relation  to  others,  and  inspire  him  with  a  determination 
to  rise  to  the  same  or  a  higher  level "  ;  and  that  "  it  is  not  to 
those  placed  by  their  fortunes  at  the  head  of  society,  but  to 
those  in  its  humbler  walks  who  have  raised  themselves  to  emi- 
nence, that  mankind  are  indebted  for  the  greater  number  of 
those  inventions  and  improvements  which  have  made  such 
vast  additions  to  the  sum  of  human  happiness."  But  we  do 
not  need  to  discuss  the  merits  of  aristocratic  rule  in  the  ab- 
stract ;  the  practical  question  is,  whether  the  blessings  it  con- 
fers upon  the  country  at  large  are  enough  to  make  up  for  the 
misery  which  it  entails  upon  the  lower  classes;  whether  the 
support  of  the  dignity  and  influence  of  a  House  of  Lords  is  a 
fair  offset  for  an  Irish  famine  and  exodus,  and  for  seven  mil- 
lions sterling  annually  expended  on  the  English  poor.  Doubt- 
less, it  is  desirable  to  have  a  body  of  fifty  thousand  wealthy 
landed  proprietors  in  the  state,  many  of  whom  are  accom- 
plished gentlemen  and  fit  to  be  hereditary  legislators  ;  but  they 
cannot  be  had  without  bringing  with  them  over  a  million  of 
paupers  every  year,  and  reducing  the  rate  of  wages,  on  which 
half  of  the  nation  are  entirely  dependent,  to  the  lowest  point 
that  will  sustain  life  on  the  poorest  and  scantiest  fare. 

But  it  is  feared  that  the  motive  for  accumulation  will  not  be 
strong  enough,  if  it  is  not  stimulated  by  a  sight  of  the  splen- 
dor and  luxury  in  which  the  great  landlords  live,  and  of  the  in- 
fluence and  consideration  which  they  enjoy.  To  this  Mr.  Mill's 
answer  seems  sufficient,  that,  "  in  America,  there  are  few  or  no 
great  hereditary  fortunes ;  yet  industrial  energy  and  the  ardor 
of  accumulation  are  not  supposed  to  be  particularly  backward 
in  that  part  of  the  world."  Economists  generally  make  a 
great  mistake,  when  they  put  so  much  stress  upon  the  neces- 
sity of  keeping  up  the  incentives  for  people  to  get  rich.  Hu- 
man nature  requires  no  urging  in  this  respect.  Wealth  is  cov- 
eted originally,  no  doubt,  for  some  ulterior  motive,  —  for  the 
enjoyments  that  it  will  bring ;  but  it  soon  comes  to  be  loved 


THE    SUCCESSION    TO    PROPERTY.  543 

for  its  own  sake,  the  passion  and  the  habit  of  money-making 
leading  to  the  sacrifice  of  every  object  for  which  riches  at  first 
seemed  desirable.  The  certain  and  undisturbed  possession  of 
a  fortune  for  one's  own  lifetime  is  motive  enough  for  exertion ; 
we  do  not  believe  that  the  springs  of  industry  and  economy 
would  be  sensibly  relaxed,  if  a  man's  power  over  his  wealth 
should  cease  entirely  at  his  death,  the  state  then  dividing  it 
equally,  as  in  France,  among  his  children. 

However  this  may  be,  Mr.  McCulloch  is  wrong  in  suppos- 
ing that  the  sight  of  great  estates  tied  up  perpetually  in  the 
same  families,  is  so  effectual  a  stimulus  to  industry,  as  if  the 
same  amount  of  wealth  were  more  equally  distributed,  and 
passed  frequently  from  hand  to  hand,  the  alternations  of  for- 
tune being  frequent,  and  the  chance  to  every  individual  of  be- 
ing successful  sooner  or  later  being  consequently  increased. 
To  induce  men  to  buy  tickets  in  a  lottery,  there  must  not  only 
be  great  prizes  in  the  wheel,  but  some  chance,  however  small, 
of  drawing  one  within  a  definite  period.  Every  lawyer  who 
begins  practice,  may  hope  one  day  to  become  Lord  Chancellor, 
for  as  that  splendid  office  is  not  handed  down  by  hereditary 
descent,  some  member  of  the  bar  must  obtain  it;  and  this 
hope,  slight  as  it  is,  is  one  of  the  springs  which  keep  up  the 
activity  and  learning  of  the  profession.  But  a  country  gentle- 
man with  a  thousand  a  year,  sees  no  possibility  of  his  becom- 
ing a  Duke  of  Buccleuch  with  an  income  two  hundred  times 
as  great;  and  therefore  the  country  gentleman  usually  does 
nothing  but  hunt  foxes  and  go  to  Newmarket.  To  take  great 
estates  out  of  the  market,  as  was  done  in  Scotland,  tying  them 
up  for  ever  in  the  same  families,  making  alienation,  division, 
—  and,  we  may  add,  improvement,  —  alike  impossible,  is  in 
fact  to  lessen  the  number  of  the  prizes  of  industry,  and  so  far, 
while  rendering  one  man  improvident,  wasteful,  and  idle,  to 
lessen  the  hopes  and  deaden  the  exertions  of  all  others.  Go 
to  the  other  end  of  society,  and  you  find  the  same  cause  work- 
ing out  similar  results.  What  hope  has  an  Irish  cottier,  a 
Tipperary  boy,  exert  himself  as  he  may,  of  ever  obtaining 
more  generous  fare  than  buttermilk  and  sodden  potatoes  ?  and 
who  can  wonder  that,  without  such  hope,  he  should  become 
the  feckless,  lazy,  and  quarrelsome  beggar  that  he  is  ?  What 
encouragement  is  it  to  him,  that,  from  the  door  of  his  mud 


544  THE    SUCCESSION    TO    PROPERTY. 

cabin,  he  can  see  the  magnificent  but  deserted  abode  of  his  ab- 
sentee landlord,  who  comes  over,  once  in  a  year  or  two,  to  look 
after  his  Irish  estates,  which  yield  him  an  income  of  £  20,000 
a  year  ?  It  shows  the  almost  indomitable  energy  of  the  Eng- 
lish, character,  that  the  sight  of  these  extremes  of  opulence  and 
misery  descending  in  the  same  lines  from  one  generation  to 
another,  the  accident  of  birth  alone  determining  who  shall  con- 
tinue in  them  through  life,  has  not  long  ago  extinguished  am- 
bition and  effort,  and  rendered  society  torpid  and  motionless. 
In  the  learned  professions,  indeed,  and  in  manufactures  and 
trade,  there  is  some  room  for  changes  of  fortune,  and  therefore 
some  incitement  to  activity.  But  even  here,  the  deadening  in- 
fluence of  a  fixed  hereditary  transmission  of  employment  and 
social  condition  is  felt.  I  have  heard  of  one  family  in  London 
which  has  sold  tea  at  retail,  on  the  same  stand,  through  five 
generations.  The  institution  of  castes  among  the  Hindoos 
affords  the  only  parallel  to  such  a  social  state,  though  even  the 
Pariahs  might  compassionate  "the  irretrievable  helotism  of 
the  working  classes  "  in  Great  Britain. 

This  comparison  of  an  aristocratic  and  a  republican  polity, 
of  a  system  of  laws  which  favors  the  aggregation  of  property, 
with  one  which  aims  at  its  distribution,  is  not  instituted  in  any 
boastful  spirit ;  for  it  is  not  the  character  of  our  people,  but  of 
our  social  and  political  institutions,  that  we  wish  to  defend. 
No  comparison  could  be  a  fairer  one ;  for  the  two  systems  are 
represented  as  acting  upon  two  equally  enlightened  and  indus- 
trious nations,  who  are  mainly  of  the  same  blood,  and  speak 
the  same  language,  and  whose  respective  situations  are  as 
nearly  alike  as  those  of  two  great  nations  ever  can  be.  Too 
great  stress  has  been  placed  by  English  economists  upon  the 
advantage  that  Americans  enjoy  in  their  abundance  of  fertile 
territory;  the  immense  colonial  dominion,  and  greater  wealth 
of  England,  go  far  towards  balancing  this  supposed  advantage. 
Many  of  the  British  colonies  afford  ample  proof,  that  the  inhab- 
itants of  a  country  do  not  rapidly  increase  in  numbers  and  op- 
ulence merely  because  they  are  abundantly  supplied  with  the 
necessaries  of  life.  In  the  character  of  the  people  and  of  the 
institutions  which  they  live  under,  and  not  in  any  imaginary  or 
real  advantages  or  drawbacks  of  territory,  soU,  and  climate,  are 
found  the  true  causes  of  national  decay  and  national  prosper- 


THE    SUCCESSION    TO    PROPERTY.  545 

ity.  Capital  and  land  are  not  mere  instruments  for  the  pro- 
duction of  wealth,  in  which  light  alone  they  are  too  frequently 
regarded  by  economists;  they  are  also  necessary  means  for 
the  support  and  happiness  of  the  whole  nation ;  and  in  this 
capacity,  like  rain  and  other  fertilizing  agents  for  the  soil, 
they  produce  the  more  effect  the  more  evenly  they  are  dis- 
tributed. 

Foreigners  who  satirize  that  eagerness  in  the  pursuit  of 
wealth,  which  seems  to  them  a  prominent  trait  in  the  Ameri- 
can character,  either  overlook  or  forget  the  great  liberality  with 
which  this  wealth  is  here  expended  for  public  objects.  Rapid 
alternations  of  fortune  do  not  lead  to  contracted  views  of  the 
use  of  riches,  or  to  penurious  habits  ;  we  may  be  a  speculating, 
but  we  are  not  a  miserly  people.  A  fortune  which  has  been 
speedily  won,  and  is  liable  to  be  quite  as  speedily  lost,  is  usu- 
ally held  very  freely,  or  with  an  open  hand,  while  it  is  in  the 
individual's  possession ;  that  which  has  been  slowly  amassed 
from  very  small  savings,  and  by  the  practice  of  rigid  economy 
through  a  long  period  of  years,  is  commonly  hoarded  with  a 
jealous  and  sordid  care.  In  a  country  like  England,  if  the 
founder  of  such  a  fortune  has  had  any  other  motive  than  a 
mere  love  of  pelf,  it  is,  probably,  that  his  hard-earned  wealth 
might  be  held  undivided  and  inalienable  in  his  own  family 
through  future  generations.  An  object  so  remote  as  this  sel- 
dom enters  the  mind  of  an  American,  and  if  it  did,  he  would 
see  but  little  chance  of  its  attainment ;  he  is  more  likely  to 
covet  immediate  applause,  and  the  transmission  of  his  name 
with  honor  to  posterity,  through  the  endowment  of  a  public 
institution  or  the  furtherance  of  some  scheme  of  general  util- 
ity. The  most  natural  and  sensible  way  of  deriving  personal 
gratification  from  newly  acquired  wealth,  and  of  making  a 
show  of  it  in  the  eyes  of  the  world,  is  to  give  largely  to  public 
charities.  The  sums  which  are  contributed  here  by  individu- 
als for  the  support  of  schools,  colleges,  churches,  missions,  hos- 
pitals, and  institutions  of  science  and  beneficence,  put  to 
shame  the  official  liberality  of  the  oldest  and  wealthiest  gov- 
ernments in  Europe.  A  New  England  button-maker,  the  ar- 
chitect of  his  own  fortune,  endows  most  munificently  an 
academy,  and  founds  two  or  three  college  professorships,  dur- 
ing his  lifetime,  scorning  to  make  only  a  tardy  provision  for 


546  THE    SUCCESSION    TO    PROPERTY. 

them  in  his  will,  dlft  of  wealth  which  cannot  be  carried  beyond 
the  grave.  The  benefactions  of  the  inhabitants  of  Boston 
alone,  a  city  which  had  a  population  of  only  25,000  in  1800, 
though  it  is  now  about  six  times  as  large,  amounted,  during 
the  first  half  of  the  present  century,  to  over  six  millions  of  dol- 
lars. And  it  is  a  remark  which  can  be  very  easily  verified, 
that  the  most  numerous  and  magnificent  gifts  and  bequests 
are  made,  not  by  men  who  have  inherited  their  fortunes,  but 
by  those  who  have  amassed  them  by  their  own  exertions. 


THE    END. 


••••••I 

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